With Hari Kishan and Vivek Mishra
BENGALURU (Reuters) – There is likely to be another bond market sale in the next three months following the recent crash in financial markets, according to analysts surveyed by Reuters, although they did not anticipate -include a runaway increase in landlord yield.
Expectations for better growth and higher inflation led to the recent spike in longer yields and dollar strength, halting the widely expected bull run in equities.
But an 18-25 March poll of more than 70 fixed-income strategies showed only a small increase in the yield of large sovereign bonds over the coming year, largely driven by bank commitments global center to keep policy loose for years to come.
U.S. 10-year Treasury yields hit 1.7540% on March 18, a level not seen since January 2020 – before the pandemic slowed yields and falling stocks. It was expected to rise around 15 basis points from that high to 1.90% in a year.
That is in line with the results of a separate Reuters poll of FX strategists who said the strength of the dollar – which has repeatedly reported a rise in Treasury yields – was likely to go -out gradually in the coming year.
“This is a temporary push higher in yield due to better growth prospects and higher inflation, but ultimately the inflation crunch is likely to be stagnant,” said Elwin de Groot, head of Rabobank’s macro strategy.
Reuters graphic image of the main yield of landlord bonds preview https://fingfx.thomsonreuters.com/gfx/polling/qmyvmryokpr/Bonds%20graphics.PNG
However, market prices have included rising interest rates much earlier than large central banks are planning, in a conflict that analysts expect will bring about near-term market volatility.
In fact, 34 out of 45 strategists in response to an additional question said there was likely to be another sell-off in bond markets in the next three months, including four who said it was very similar.
When asked to rate current inflation rates by global bond markets, 24 out of 45 strategies said they were about right. Fifteen respondents said they were too high and six said they were too low.
The fair rate on U.S. 10-year inflation protection securities, a measure of annual inflation expected over the next 10 years, rose last week to its highest level since January 2014.
But the U.S. Federal Reserve has pledged to keep interest rates stable even as inflation breaks the central bank’s 2% target this year, an estimated gamble in its new approach underscores employment benefits.
Fed Chairman Jerome Powell has so far allayed concerns about a rise in U.S. Treasury yields, up about 80 basis points since January.
When asked what Treasury yield level would encourage the Fed to take yield curve control, the consensus range was 2.25-2.50%, around 50-75 basis points above Thursday’s higher level. height than one year.
“It may not be the particular level that frightens the Fed, but the faster the pace of any movement,” said James Knightley, chief international economist at ING.
“If a product reveals economic fundamentals then the Fed will be happy, but if they feel that things are moving too far too fast, that is what action could be taken from them to control it. movement in yield. “
Reuters graphic results on U.S. Treasury at a glance https://fingfx.thomsonreuters.com/gfx/polling/dgkvlekwlpb/Bonds%202%20(2).png
Despite the recent rise, sovereign yields remain low by historical levels and the range of predictions showed higher highs and higher levels, suggesting that risks were further dragged upwards. , an opinion agreed 39 of 46 strategists who answered another question.
Monitoring the U.S. Treasury, yields on par with other major countries have risen this year, albeit at a slower pace, and were expected to rise only slightly over the year. next year.
“If we are right that U.S. output will continue to rise, that may put upward pressure on long-term output elsewhere. But we believe that long-term output elsewhere will continue to rise more. lower than in the U.S., for a number of reasons, “noted Thomas Mathews, a market economist at Capital Economics.
“First, we believe that prospects for economic growth are, for the most part, less strong outside the United States. Second, we believe that central banks will be more willing than the Fed to ensure that long – term output will remain low even as their economies recover. “
(Reporting by Hari Kishan and Vivek Mishra; Voting by Indradip Ghosh and Nagamani Lingappa; Editing by Rahul Karunakar and Hugh Lawson)