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(Bloomberg) — Traders betting on a bond rally in 2024 are undeterred by the recent pullback, seeing it as an opportunity to grab higher yields before the Federal Reserve starts cutting interest rates.
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The momentum was on display Friday as bond prices fell after the Labor Department reported that job growth unexpectedly accelerated last month. But the selling was capped by a rush of buyers as the 10-year Treasury yield neared 4.1%, its highest level since mid-December.
Despite data showing continued economic strength, the recovery highlights a marked shift in sentiment over the past two months, with investors betting the bond market is on course to emerge from its worst slump in decades. We are increasingly confident that the economy is on the verge of recovery. Despite the recent economic recovery, traders expect the Fed to begin easing monetary policy as early as March, and yields remain well below their October highs.
“Anything between 4% and 4.2% is a buy,” said Priya Misra, a portfolio manager at JPMorgan Asset Management. He pointed out that there was. “To break through 4.2%, we will need to either resume rate hikes or lift overall cuts,” she said.
The rally that gripped the bond market in the last two months of 2023 ended its worst losses in decades and led U.S. Treasuries to a rally this year, with yields unlikely to retest their all-time highs. I became more confident that there was no such thing. Investors are mindful that yields could rise if upcoming data changes the Fed’s expectations for the future, but some large investment firms are viewing the recent decline as a buying opportunity. Looking.
Yields in Australia and New Zealand rose on Monday, a move that matched that of U.S. Treasuries on Friday. Australian 10-year bond yields rose 4 basis points to 4.17% after the US same-day rate rose 5 basis points to 4.05% over the weekend. New Zealand 10-year bond yields rose 6 basis points to 4.61%. Government bonds will be closed on Monday Asian time due to Japan’s holiday.
Strategists at TD Securities told clients on Friday that although bonds could fall further in the near term, the labor market is cooling and they remain confident that the 10-year Treasury yield will reach 3% by the end of 2024. He said he was doing it.
“The bond market has no intention of abandoning its optimistic assessment of the Fed’s interest rate cuts this year,” said Kevin Flanagan, head of fixed income strategy at WisdomTree. “The buy-on-the-buy narrative is here to stay, and it will take multiple jobs reports to change it.”
Not all sectors of the bond market are immune to losses, and policy-sensitive 2-year bonds are at risk of potential repricing if traders further scale back bets on rate cuts due to a strong economy. may be exposed to. And this week, the market faces a further test with the release of the December consumer price index and a $37 billion 10-year Treasury auction, a key indicator of demand. Public appearances by New York Fed President John Williams have also been closely watched, and he is among the officials who have recently dampened market expectations for a deep rate cut early this year.
But the Fed has held policy unchanged since July, and minutes of its December meeting released Wednesday showed policymakers expect it will likely begin easing by the end of the year. .
Read more: Federal Reserve expects interest rates to remain high for some time with 2024 rate cut in sight
However, the extent to which this happens depends largely on whether inflation continues to recede. Economists surveyed by Bloomberg expected the consumer price index to rise at an annual rate of 3.2% in December, up from 3.1% the previous month. However, the core index is considered a better measure of underlying pressures because it excludes volatile food and energy prices, and its growth rate is expected to slow from 4% to 3.8%. There is.
It’s still above the Fed’s 2% target, but at a much slower pace. Additionally, the central bank’s preferred benchmark rose just 1.9% on a six-month annualized basis in November, marking the first time in three years that the index was below the Fed’s target level.
“10-year rates could stay below 3.5% for the rest of the year, but that will be driven by lower inflation and some slower growth,” said Gene Tannuzzo, global head of fixed income at Columbia Threadneedle Investments. “It depends on the slowdown.” “The trend of lower inflation and lower growth means the Fed has a framework for easing, which will likely be in the first half of this year.”
Bloomberg Intelligence Agency Announces…
“Treasury yields may rise in the coming months as markets price in some of the rate cuts already priced in, but we still expect yields to fall across the larger bullish curve by the end of the year. I’m thinking about it.”
— Ira F. Jersey and Will Hoffman, BI Strategists
Click here to read the full report
what to see
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Economic data:
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January 8: New York Fed’s 1-year inflation expectations.Consumer finance
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January 9: NFIB Small Business Optimism.trade balance
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January 10: MBA home loan application.wholesale stock
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January 11: Consumer Price Index. Apply for unemployment insurance. Actual average hourly and weekly earnings.monthly budget statement
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January 12: Producer Price Index
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Fed Calendar:
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January 8: Atlanta Fed President Rafael Bostic
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January 9: Oversight Vice Chairman Michael Barr speaks on banking regulation
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January 10: John Williams, President of the Federal Reserve Bank of New York
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January 12: Minneapolis Fed President Neel Kashkari
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Auction calendar:
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January 8: Invoices for 13 and 26 weeks
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January 9: 42-day cash management bill. 3 years worth of notes
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January 10: Resumption of 17-week and 10-year bonds
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January 11: Bills for 4 and 8 weeks. 30 year bond reopens
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–With assistance from Garfield Reynolds.
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