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Fed ‘Policy Mistake’ Trade Seen Making Comeback in Bond Market

  • BofA says market may approach pricing in yield-curve inversion
  • Forward rates show traders don’t expect a growth pickup

Wall Street is pushing back against the Federal Reserve’s tougher tone on raising interest rates, as strategists see the bond market warning of potential consequences.

Treasuries staged their biggest weekly decline since November after minutes from the Fed’s April meeting rekindled wagers that policy makers will raise rates as soon as next month. The dollar soared and bond-market gauges of inflation expectations fell. What’s more, traders started betting the gap between two- and 10-year note yields will narrow over the next three years, after it reached the flattest since 2007 this week.