Bonds Are Hostage to Elusive Neutral Rate That Keeps Moving
- Some policymakers have lifted estimates for ‘neutral rate’
- Risk for bond bulls is Fed will keep rates higher for longer
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The bond market’s re-energized bulls may want to dial down their excitement, because their fortunes hinge on whether an abstract, almost elusive number, is as low as they assume.
At the heart of what’s been shaping fixed-income investors’ views this year is the so-called neutral rate, which neither stimulates nor restricts the economy. Treasury bulls began the year invigorated by the belief that the Federal Reserve’s aggressive tightening was set to push borrowing costs well above the neutral level, and that officials would soon have to reverse course.