‘Marts pricing Fed rate hike trajectory too benignly’

SINGAPORE: United States bond yields are set to rise as the market is underestimating how many times the Federal Reserve (Fed) will raise interest rates in the next 12 months, according to Fullerton Fund Management, the asset manager owned by Temasek Holdings Pte.

The Fed would probably raise its benchmark two more times this year, said Ong Guat Cheng, Fullerton senior vice-president for fixed-income, here.

Futures traders are predicting just one more increase by yearend.

“Markets are pricing the longer term rate hike trajectory too benignly, despite the Fed’s guidance and firm economic data,” said Ong

“With the Trump administration’s proposed policy of tax cuts and increased infrastructure spending, the pace of US growth could accelerate and potentially encourage the Fed to raise interest rates at a faster pace.”

Ten-year Treasury yields were set to trade in a range of 2.20 to 2.60 per cent this year, said Ong.

Mark Kiesel, chief investment officer for global credit at Pacific Investment Management Co, said 10-year Treasury yields might climb to 2.75 to three per cent over the “medium term’’ as the Fed would probably raise rates twice more this year.

Boston Fed president Eric Rosengren called on Wednesday for his colleagues to raise interest rates three more times this year, on concern that the central bank wasn’t acting quick enough to prevent the economy from overheating.

Fullerton managed S$16.5 billion (RM50.92 billion) in assets at the end of March. Bloomberg