Key Takeaways
- US Treasuries down just 0.1% for 2024 after losing 3.4% in April.
- Investors anticipate two Fed rate cuts this year, boosting bond optimism.
- Treasury market volatility drops, signaling potential stability ahead.
What Happened?
US Treasuries have nearly erased their 2024 losses, now down just 0.1% after a turbulent first half of the year. This rebound follows a steep drop of 3.4% in April. Investor bets on cooling US prices and potential Federal Reserve rate cuts have fueled this recovery.
Two-year yields surged above 5% in April but have since retreated to around 4.70%, indicating a cooling economy. Traders are pricing in two-quarter point Fed cuts this year, with the first expected in November.
Why It Matters?
Treasury yields significantly impact your investment portfolio. Bonds offer stability in multi-asset portfolios, making their resurgence crucial. Lower yields suggest the Fed might cut rates, reducing borrowing costs and stimulating the economy.
Stephen Miller, a market veteran, notes, “Bonds are now back as having a deserved place in a multi-asset portfolio.” Additionally, the ICE BofA MOVE Index shows declining bond market volatility, which could mean more predictable returns.
What’s Next?
Investors should watch for the June 28 release of the personal consumption expenditure core price index. Economists predict a subdued inflation rate of 2.6% for May, the lowest since 2021. This could solidify expectations for a September rate cut.
Rachana Mehta from Maybank Asset Management suggests that 10-year yields might hover around 4.4% to 4.5%, offering a good buying opportunity. While some strategists at Barclays recommend shorting the 10-year note, others see a 4% yield as a viable target, indicating possible rate cuts and economic cooling ahead.
