Strategists slash U.S. yield view again despite Fed's inflation focus

 U.S. Treasury yields will trade sharply lower a year from now than was forecast just a few weeks ago, according to fixed-income strategists polled by Reuters, who also expected the U.S. yield curve to steepen further.

Yields on U.S. 2-year Treasury notes have plunged over 100 basis points following the failure of some regional U.S. banks last month. They had peaked above 5% on March 8 following hawkish testimony from Federal Reserve Chair Jerome Powell.

While Fed rhetoric since then has softened a bit, policymakers have by and large reiterated their focus on taming inflation, running at more than twice the 2% target, and so at minimum one more interest rate rise in May is still in store.

But markets are pricing for a series of interest rate cuts starting just two months later, underscoring an exceptionally large divergence from the central bank's own view.

That recent downward trend in yields is forecast to continue further, according to the April 5-12 poll of over 60 bond strategists.

While yield forecasts were largely downgraded across maturities from last month, the outlook for the short end of the yield curve, which is most sensitive to policy rate changes, was slashed by a bigger margin, suggesting a steeper yield curve.

U.S. 2-year Treasury yields, currently trading at around 4.0%, were seen falling about 50 basis points to 3.45% over the next 12 months - a 40-odd basis-point downgrade from a survey conducted last month.

However, in the coming three months, yields on both 2-year and 10-year notes were expected to rise 20 and 25 basis points, respectively, before resuming their fall.

"The curve steepened sharply as (rate) cut pricing continues to rise. We prefer to be positioned for steepeners, but don't want to chase the move as cuts are unlikely to be imminent," said Priya Misra, head of rates strategy at TD Securities.

"The pricing for immediate cuts is likely too aggressive, but markets continue to react disproportionately to weaker data," Misra said.

https://finance.yahoo.com/news/strategists-slash-u-yield-view-121452479.html