NEW YORK - Strong economic data and worries over sticky inflation are pushing investors to reassess how deeply the Federal Reserve will be able to cut interest rates this year, fueling weakness in the U.S. government bond market.
"The Fed is starting to get ahead of the market because the Fed is saying ‘we're going to cut’ and the market is saying ‘you don't need to because economic activity is so strong,’" said Tony Roth, chief investment officer at Wilmington Trust Investment Advisors. U.S. investment management firm PIMCO said in a 6-12 month outlook report on Wednesday it expects inflation to remain above the Fed’s 2% target. It still believes the central bank will start cutting rates in the middle of 2024, but said sticky inflation may lead to a more gradual path of rate cuts than in other economies.At the same time, concerns over the state of U.S.
Overall, yields on the 10-year have risen by 50 basis points since the beginning of the year. Some investors have used that as an opportunity to lock in yields with the hopes that bond prices will rise as the Fed cuts rates later in the year. Meanwhile, net bearish positions in key two- and 10-year Treasuries futures last week have increased for the first time in three weeks, according to data by the Commodity Futures Trading Commission.
Campe Goodman, lead portfolio manager of the Hartford Strategic Income Fund, believes the selloff in the bond market is unlikely to go much further, as higher yields draw income-seeking investors. He expects 10-year yields to trade between 4% to 4.75% and for inflation to remain under control.
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