Tag: Haven

European bonds also benefited from the risk-off mood, with the German 10-year yield falling eight basis points to 2.49%. Debt from Italy to France and the UK gained.

Swaps followed the move and fully priced two quarter-point reductions from the Federal Reserve this year for the first time since December. Wagers on a March cut also increased to more than one-in-three, compared to one-in-four last week.

Still, Fed officials are seen holding rates steady this week as inflation remains above target and the path of Trump’s economic policies remains highly uncertain. Lauren van Biljon, portfolio manager at Allspring Global Investments, said clarity may only start to emerge in the second quarter after the review of trade policy commissioned by the US president.

“All central banks can really do right now is flag potential risks to current data and really it leaves them pretty much on hold,” she said. “There is so much policy uncertainty into this year, next year and the hereafter, and that will be a huge driver of not just US growth, but global growth and inflation.”

What Bloomberg strategists say…

““Any further gains in Treasuries will face a reality check from Friday’s core PCE numbers. …The central bank will find it hard to cut rates against a backdrop of a still-resilient economy.”

— Ven Ram, MLIV cross assets strategist, Dubai. Read the full note here.

US yields rose sharply earlier this year as traders reset expectations for monetary policy on speculation that Trump’s policies would fan price pressures. A gauge of where investors see inflation over the second half of the next 10 years has climbed to 2.60%, the highest since July.

“When we’re getting close to these 5% levels there’s some value to be had,” said Newton’s Hoxha. Still, the new administration’s fiscal policies including tax and spending still present a hurdle for bond markets, she added.

But investors including Pacific Investment Management Co. say that won’t hold the Fed back from easing policy and are betting on short-maturity Treasuries. Also Morgan Stanley strategists including Matthew Hornbach said this week’s policy decision could be a catalyst for a further decline in yields.

“The inauguration ended with growth-negative immigration orders, not inflation-inducing tariffs,” Morgan Stanley strategists wrote in a note dated Friday. “Lower inflation than feared, less growth than expected, and a Fed that cuts rates more than priced into markets should lead to lower US Treasury yields.”

—With assistance from Vassilis Karamanis, James Hirai and Greg Ritchie.

(Updates prices, adds Newton quote in paragraph four.)

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