Bond market view at odds with optimism

bengaluru — US Treasury bond yields are set to rise this year, but not as much as many currently expected, according to a Reuters poll of top fixedincome strategists who appear skeptical the Federal Reserve will manage to raise rates several times more this year.

Central banks, not finance ministries and their borrowing plans, will still wield the strongest influence on sovereign bond markets, the poll found, led by the Fed.

This stands in sharp relief to what has been driving US stock markets to daily record highs over the last several months: hopes that the Donald Trump White House will successfully usher in financial deregulation and sweeping tax cuts through a Republican-led Congress.

That is otherwise known as the “Trump reflation” trade.

But bond strategists as a whole still do not appear very concerned about global inflation, despite rising demand for inflation-indexed bonds since the start of the year.

These forecasters, who were all-but spot-on as a group a year ago on where the 10-year US Treasury yield would trade now, mostly are of the view that the Fed’s recent activism with rates is not likely to turn into an aggressive tightening cycle.

“The market is too optimistic about the impact of Trump’s plans,” said Elwin de Groot at Rabobank. “We actually see a bigger risk [that] his plans, especially on trade, will backfire for global growth.” —