A growing number of bond strategists predict that US Treasury yields will decline in the coming months, driven by an economic slowdown triggered by President Donald Trump’s tariffs. The survey, conducted by Reuters, found that nearly half of respondents believe the Federal Reserve will lower interest rates to combat inflation expectations.
The optimism comes despite a recent sell-off in the market, which saw the benchmark 10-year Treasury yield rise to a near two-month high of 4.59%. However, investors’ sentiment has soured considerably since Trump’s surprise 90-day backtrack on reciprocal tariffs with China, and some experts believe a large-scale global exodus away from US assets may already be underway.
Goldman Sachs strategists noted that the dramatic swings in the market revealed cracks in the Treasury market that may remain visible for some time. Despite this, over half of bond strategists polled predicted the 10-year yield would decline to 4.21% by the end of June and fall further to 4.14% in a year.
The MOVE index, which measures treasury market volatility, reached an 18-month peak last week and is still more than 50% higher than its long-term average. However, some experts believe that realized volatility will decrease, allowing for longer-term themes of disinflation and slowing economic growth to take hold.
Guy LeBas, chief fixed income strategist at Janney Montgomery Scott, expressed hope that volatility would decrease and intermediate-term yields would fall lower. He also noted that he has more confidence in an intermediate-term view of lower yields than a short-term view dominated by overextended positioning.
Inflation expectations have hit their highest in more than 40 years, making it difficult for the Fed to cut interest rates without causing inflation. However, interest rate futures are pricing in three Fed rate cuts this year, compared to one or two at the start of the year.
Overall, the survey suggests that bond strategists are becoming increasingly cautious about the US Treasury yield forecast, with risks tilted to the upside due to inflation and slower growth.
Source: https://finance.yahoo.com/news/bond-strategists-expect-us-yields-192114609.html