Bond Yields are Jumping at Federal Reserve Phantom Shadows
The fixed-income market has become too bearish, too quickly.
Don’t be so afraid of the Fed.
Photograph: Archive Photos/via Getty Images
It's like 2022 all over again, with 10-year US Treasury yields approaching 4%, equity markets struggling and the dollar strengthening. But now is not the time to abandon all hope and jettison fixed-income positions. Instead, investors should be contemplating where to add to their bond holdings, not reduce them.
Other bond markets are hostage to the shifts in Treasuries, where yields are being driven higher as the market anticipates the Federal Reserve will continue to tighten aggressively. Shorter maturities are leading the way, with the two-year US yield back up to the November peak of 4.7% and close to its highest since the global financial crisis. German two-year yields near 3% show a similar story. Further central bank rate hikes are being priced in across the globe, partly in reaction to the dollar index firming by 3% so far this month. Dollar strength, driven by rising yields, reverberates far and wide. Deutsche Bank AG analysts have raised their European Central Bank peak rate expectations to 3.75% from 3.25%. An uptick in geopolitical tension, at the one-year mark of the start of the war in Ukraine, isn’t helping sentiment.