Source: Zhitong Finance

Bond traders are preparing to deal with the possibility that the yield on US 10-year Treasury bonds will exceed 5%, as the scenario where the Federal Reserve will not cut interest rates this year seems increasingly likely. According to information, as inflation continues to be high, the risk that interest rates will remain high for a long time has increased, and the investment company Schroders Plc is short trading US bonds. Meanwhile, Pacific Investment Management anticipates that the Federal Reserve will relax policy more slowly than its peers in other developed markets, and there is a possibility that “cannot be ignored”, that is, it will not cut interest rates at all this year.

Among them, Kellie Wood (Kellie Wood), Deputy Head of Fixed Income at Schroders Plc in Sydney, said, “I don't think it's impossible for 10-year Treasury yields to reach 5% or more.” Furthermore, the fund also targeted “the possibility that the Federal Reserve will not cut interest rates at all this year.” The asset manager holds bearish positions on US 2-year, 5-year, and 10-year bonds.

Ben Emons (Ben Emons), senior portfolio manager at Newedge Wealth in Connecticut, said, “This is a choice on the table. As the market focuses on new inflationary risks, the 10-year Treasury yield will fully retreat to 5.30%, the highest point before the global financial crisis.”

Ray Sharma-Ong, head of the Southeast Asia multi-asset division of Abrdn Plc, also said they are considering reducing their investment in long-term treasury bonds because they expect stronger market growth, which may lead to higher interest rates and lower bond prices, thereby affecting long-term bond returns.

This view highlights the rapid changes in the global bond market. A few months ago, the mainstream view was that interest rates would be cut six times starting in March, 25 basis points each time. Now, as the US key price index exceeds forecasts for the third month in a row, the voice of the bear market in treasury yields is getting louder and louder. Furthermore, global bonds have also been sold off, and interest rate markets in Japan, New Zealand, and Australia are under pressure.

Although most investors still expect to cut interest rates once or twice this year, they think they need to hedge against the unchanged scenario because strong US data delays the expected schedule. Furthermore, Wall Street strategists such as Goldman Sachs have adjusted their predictions. Some believe that current inflation trends are similar to those at the end of 2021, when price pressures persisted and set the stage for a hawkish shift in the Federal Reserve.

However, not everyone expected the sell-off to continue. Kelvin Tay of UBS Global Wealth Management said the company may reevaluate its forecast of cutting interest rates three times this year, but he believes treasury bonds are expected to rebound when the Federal Reserve begins to relax its policy. However, if the US continues to show strong economic data, it may reinforce the views of those who think inflation will continue.

According to reports, the yield on US 10-year treasury bonds was basically stable during Thursday trading. Previously, after the US basic inflation rate had been higher than expected for the third month in a row, the yield on the benchmark 10-year treasury bond broke through 4.5% for the first time since November. Global bonds have also been sold off, and interest rate markets in Japan, New Zealand, and Australia are under pressure.