Renewed hostilities in the U.S.-Israeli war with Iran and revived inflation risks have done little to sway most bond strategists surveyed by Reuters, who still expect shorter-dated U.S. Treasury yields to fall as markets abandon bets for Federal Reserve rate hikes.
Treasury Yields
The benchmark 10-year yield climbed to around 4.6% and the 30-year moved back above 5.0%, with several Fed policymakers warning inflation could prove persistent. U.S. inflation is currently more than twice the Fed’s 2% target.
Markets fully priced out Fed rate cuts after the war began and now imply roughly one to two quarter-point hikes this year. Economists in separate Reuters surveys have also steadily removed their rate reduction views since April with a strong majority now predicting a hold.
The rate-sensitive two-year yield, currently a shade below an 18-month high at 4.20%, was still predicted to fall in the July 6-9 poll, though slightly less than June forecasts – about 20 basis points in three months to 4.00%, to 3.90% in six and 3.85% in a year.
Expert Insights
“Over the next few months we see Treasury yields as largely stable, if not slightly lower, led by the front end of the curve … Current market pricing of Fed policy, anywhere from one to two hikes … is excessive,” said Joseph Purtell, portfolio manager at Neuberger Berman, who expects the Fed to remain on hold well into next year.
“Inflation is priced too sticky in the marketplace right now,” said Jason Williams, director of U.S. rates research at Citi. “The market is already pricing almost 40 basis points of rate hikes for the rest of this year – quite a chunky number. If that ends up being zero, that alone could be worth 30-odd basis points in 10-year yields, if not a little more.”
Original reporting: Appleton, WI News Feed (HLL/CB) — read the source article.
