Treasury yields will rebound on signs Europe is containing its sovereign-debt crisis and evidence the global economic recovery is regaining momentum, according to Barclays Plc.
Economic reports should turn positive after the Fourth of July holiday weekend, gradually lifting U.S. debt yields, said Ajay Rajadhyaksha, head of U.S. fixed-income strategy in New York at Barclays Capital Inc., in an interview today on Bloomberg Television’s “InBusiness With Margaret Brennan.” The firm is one of 18 primary dealers that trade directly with the Federal Reserve.
“As risk aversion starts to abate, as people start to get a little more confidence, not just in the economy, but more importantly in the belief that Europe is not going to blow up, Treasury yields will start to rise,” Rajadhyaksha said.
The two-year note yield was headed for a weekly drop of 5 basis points, or 0.05 percentage point, the biggest since the five days ended May 7. The Fed said on June 23 that the U.S. recovery pace is “likely to be moderate for a time.”
The yield fell yesterday to 0.6329 percent, the lowest level since Nov. 27. It reached the record low of 0.6044 percent on Dec. 17, 2008. The median forecast of 51 economists in a Bloomberg News survey is for the yield to be 1.32 percent at year-end.
Treasury two-year notes rose today, pushing the yield down two basis points to 0.66 percent. The 10-year note’s yield decreased three basis points to 3.10 percent.
The strategist called the 33 percent plunge last month in U.S. new-home sales reported this week by the Commerce Department “completely askew” because of pent-up demand.
“It’ll recede slowly,” said Rajadhyaksha, referring to the prevailing pessimistic sentiment. “I am by no means suggesting we are going to see 10-year Treasuries rise by 50 basis points over the next month.”