Bonds ignore Fed

Bond yields have climbed steadily to three-month highs in 2024 as more investors bet the Fed will be unable to lower rates as fast as it’s signaled.

Analysts expect the U.S. government will keep borrowing heavily to meet its financial obligations for foreseeable future, since

Washington seems to be at a standstill regarding the budget and policy.

The Fed signaled last week that it wants to lower long-term interest rates to roughly 2.5% from a range

Steady growth:

Bond yields have climbed steadily to three-month highs in 2024. of 5.25% to 5.5%, but recent inflation data may require them to slow down those cuts. The bond market now believes there will be a roughly two percentage point premium on the Fed’s long-term plans, which is why bonds are now trading around 4.2% percent, UBS analysts said in a note.

“So, with Fed rate cuts remaining on the horizon this year, we maintain our preference for quality bonds, which offer an attractive risk-reward proposition in our view,” UBS analysts wrote.