Investors shifted focus to US government bonds as expectations for American economic growth slowed, alleviating pressure on stocks. The rally prevented a third straight daily loss of yields, which had reached their highest levels this month.
Bond investors largely ignored recent data showing slower inflation, attributing it to the Trump administration’s trade policy. Global rates strategist Ed Al-Hussainy noted that Treasuries effectively cushioned equities from losses, indicating diversification into bonds was still effective.
The ongoing trade war also led economists at Barclays Plc to reduce their forecast for US GDP this year and predict two interest-rate cuts by the Federal Reserve, compared to one previously. Treasury yields dropped further as major US equity benchmarks declined. Swaps traders expect the Fed to cut interest rates around 66 basis points this year.
Despite concerns about a looming recession forcing the Fed to cut rates aggressively later this year, some strategists believe the market’s recovery has reduced expected yields for upcoming auctions. The rally appears to be driven by growing concern of a potential US recession.
Source: https://finance.yahoo.com/news/us-treasuries-fall-investors-look-130639526.html