The surge in US Treasury yields above the 4 percent threshold is drawing a mixed response from investors, despite the Federal Reserve’s recent rate cuts. Experts from Pictet, UBS Wealth Management, and Bank of America see an opportunity to lock in attractive yields amid market turbulence, but the bond market remains unconvinced about the Fed’s path forward.
The rise in yields has been abrupt. Ten-year Treasury rates breached the 4 percent mark this week, frustrating early bond buyers as prices fell. Still, Leslie Falconio, head of taxable fixed income strategy at UBS Wealth Management, believes this is an ideal moment to act for those with liquid assets on hand. “The economy may be cooling, but investors should consider buying government bonds at these levels before yields move lower,” Falconio advises.
Bank of America’s outlook echoes this view, forecasting a dip in 10-year rates to 3.75 percent by year-end. Mark Cabana, the bank’s Interest Rate Strategist, sees room for bond prices to rise as yields decline, potentially rewarding investors who move in now. Pictet’s Maria Vassalou adds that “short-term weakness in Treasuries could be an opportune entry point.”
Scepticism pervades
Despite bullish forecasts, many investors remain hesitant, as US Treasury yields have climbed in the face of a 50-basis-point rate cut by the Fed last month. The 10-year yield’s push past 4 percent, up from around 3.6 percent only weeks ago, reflects a market grappling with contradictory signals. Stronger-than-expected economic data—including a surprise uptick in the ISM Services Index and robust job creation in September—fuels concerns that inflationary pressures may persist.
Adding to the uncertainty, the US Treasury’s upcoming bond issuance, including 38 billion dollars in 3-year notes, 29 billion dollars n 10-year bonds, and 22 billion in 30-year debt, is poised to exert further upward pressure on yields.
Inflation data looms large
The bond market’s next test arrives with the latest inflation figures on Thursday. Analysts expect core inflation to rise by 0.2 percent month-on-month, with the headline figure climbing 0.1 percent. A sustained inflationary environment would challenge the Fed’s rate-cutting intentions, keeping yields elevated.
Mark Dowding, chief investment officer at RBC BlueBay, is sceptical of the market’s optimism for more Fed easing. “We think futures are overpricing the likelihood of monetary loosening, given the resilience in the data,” he warns.
Opportunity or trap?
As debate intensifies over the direction of US Treasury yields, investors are left to weigh the potential for stable income against the risk of further price declines. The allure of 4 percent yields may be strong, but whether the bond market will align with expert predictions or defy them remains an open question. For now, the cautious approach appears to be waiting for clearer signs that the Fed’s policies will succeed in taming inflation without stoking fresh volatility.
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