Chinese 10-year yields are close to a 20-year low, at their current level of 1.656% as of Jan 24.
The Chinese and Hong Kong markets have been rangebound for much of the past 12 months. However, with the China Securities Regulatory Commission and the Peoples Bank of China introducing measures to revive the market, the Hang Seng Index challenged the twice tested resistance level of 20,400. A breakout would indicate an upside of 21,800. The Hang Seng Index ended at 20,066 on Jan 24.
The rest of the world should prepare for more volatility. As expected, Trump 2.0 has thrown a spanner into the works by telling the participants at the World Economic Forum (WEF) at Davos by video that he will apply pressure to bring down interest rates.
“I’ll demand that interest rates drop immediately. And likewise, they should be dropping all over the world. Interest rates should follow us all over,” the US president is reported to have said on Jan 23.
The direction of interest rates impact S-REITs’ unit prices, their distributable income and their capital values. Inflationary policies coupled with demands for lower rates could create uncertainty and volatility.
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Central banks set policy rates. The US Federal Reserve’s Federal Funds Rate is at 4.5% to 4.75% following three rate cuts in 2024. The Federal Open Market Committee meets on Jan 28-29 and they are widely expected to leave rates unchanged, according to economists.
“We and the markets expect a pause in the Jan FOMC as the Fed exits the “re-calibration phase” and takes stock of the inflation and growth outlook under the new Trump administration. We had revised our FOMC view, to only one 25-bps cut in 2Q2025 (from three cuts previously) and stay on hold for rest of the year at 4.25% (upper bound of Fed Funds Target Rate),” UOB Global Economics and Markets Research says.
UOB expects two cuts in 2Q and 3Q of 2026, after Powell exits in May 2026. This will bring the terminal rate to 3.75% in 3Q2026. “The reduced number of cuts in 2025 reflect that US labour markets are holding up better than what we were forecasting while the higher inflation pressures from the projected tariff implementation during the latter part of 2025 is still a prominent upside risk to prices,” UOB says.
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Elsewhere, the 10-year JGB yields have rebounded to a 10-year high. Inflationary pressures have also reached Japan. The Bank of Japan raised interest rates to 0.5% from 0.25% on Jan 24, in line with market expectations. “The move reflects the central bank’s confidence in Japan’s economic recovery and the durability of its inflation trends, consistent with its outlook,” says Ben Powell, Chief Middle East and APAC Investment Strategist at the BlackRock Investment Institute.
“We expect normalisation to continue at a gradual pace. Our investment views are intact: corporate reforms and mild inflation are helping corporate pricing power and earnings growth, keeping Japanese equities attractive. We remain tactically overweight and favour above-benchmark allocations in long-term portfolios,” Powell says.
Trump is not a monarch with absolute power. He cannot proclaim that interest rates must fall. In effect, risk-free rates are a harbinger of how markets view the trend of interest rates. The higher for longer trend for developed market rates is evidenced by the chart patterns of risk-free rates.
