- Traders bet on a higher long-term funds rate than Fed
- Neutral rate shift sets up a limit to gains in Treasury bonds
Just as optimism is growing among investors that a rally in US Treasuries is about to take off, one key indicator in the bond market is flashing a worrying sign for anyone thinking about piling in.
First, the good news. With 2024’s midway point in sight, Treasuries are on the cusp of erasing their losses for the year as signs finally emerge that inflation and the labor market are both truly cooling. Traders are now betting that may be enough for the Federal Reserve to start cutting interest rates as soon as September.
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