NEW YORK (Jan 16): Cracks are forming in the market’s bullish consensus for bonds, as resurfacing fiscal concerns duel with expectations that cooling inflation will push the Federal Reserve to cut interest rates in coming months.
Bullish investors believe the explosive rally bonds experienced in late 2023 is likely to continue into this year, if the Fed loosens monetary policy as expected. Futures tied to the Fed’s main policy rate on Friday showed investors pricing in more than 150 basis points of cuts – twice the amount policymakers projected last month.
Not so fast, say the bears. While expectations for Fed easing may be driving bond prices now, some believe U.S. Treasury issuance, expected to nearly double to $2 trillion in 2024, could be a counterweight. Yields – which move inversely to bond prices – would have to rise from current levels to entice demand for the flood of new debt, they say. Such concerns helped drive…
