Bonds: Fed keeps door open to 2016 rate hike

These were the movements in some of the most widely-followed 10-year sovereign bond yields:

US: 1.66% (-3bp)
UK: 0.81 (0bp)
Germany: 0.002% (+2bp)
France: 0.30% (+2bp)
Italy: 1.28% (+3bp)
Spain: 1.00% (+2bp)
Portugal: 3.41% (+10bp)
Greece: 8.50% (-1bp)
Japan: -0.03% (+4bp)

Gilts were literally unchanged as traders waited on and then digested the US central bank's latest policy decisions.

The Federal Reserve stayed put on interest rates but kept the door to a December rate hike very much open, even as rate-setters reigned in their short-term projections for their key policy lever, the Fed funds rate.

According to the Summary of Economic Projections, the presidents of the Fed's regional banks and the members of the central bank's board lowered their median forecast for the Fed funds rate at the end of 2017 from 1.6% to 1.1% and for 2018 from 2.6% to 1.9%.

Worth noting, in her press conference Fed chair Janet Yellen noted that the FOMC's decision did not reflect a lack of confidence in the economy.

Commenting on the Fed's announcements, Barclays Research's Michael Gapen and Rob Martin said: "[...] This split in views will make FOMC communication and action increasingly difficult this year.

"In particular, we believe that this level of dissent will make it difficult for the committee to keep the possibility of December rate hike live in the minds of market participants and, indeed, households and businesses."

Earlier in the same session, the Bank of Japan announced a shift in its policy regime towards targeting the shape of the country's government bond yield curve instead of the so-called monetary base.

"BoJ decision to shift its monetary policy regime was in part an admission that base monetary expansion itself did little to ease monetary conditions and that Japan needed a steeper yield curve in order to support the economy, said Tomoya Masanao, head of portfolio management Japan at PIMCO.

"The actual yield curve should not be too flat relative to the neutral curve otherwise the economy will be negatively affected through weakening of financial intermediation."

To take note of perhaps, in remarks made to Bloomberg TV Janus Capital's Bill Gross said the BoJ's new policy framework implied a 'soft-cap' on the yield of the benchmark 10-year US government bond at roughly the 1.85% level.