The Federal Reserve’s expectations that the U.S. economy will continue to expand and will need additional interest rate hikes to combat inflation They led to HSBC to raise its year-end forecast for the 10-year Treasury bond return from 3% to 3.5%, as the bank’s strategists wrote this Thursday in a note.
“At a time when the Federal Reserve maintains its hawkish stance supported by recent GDP data, there is pressure for short-term bond yields to remain elevated, and this affects the entire curve,” wrote the firm’s analysts, led by Steven Major, global head of fixed income.
The firm expects the return on the benchmark 10-year notes to close 2024 at 3%. The day before it reached its level highest in 16 years, 4.49%, while the yield on two-year, rate-sensitive paper reached its level highest in 17 years, 5.2%. Bond returns move in the opposite direction to prices.
The Fed left rates unchanged on Wednesday, as markets expected. However, those responsible for monetary policy reinforced their aggressive stance announcing the forecast of a new rate hikes for the end of the year and much more restrictive monetary policy forecasts until 2024 than the markets had anticipated.
Despite the Fed’s aggressive stance, There is reason to believe global central banks are closer to cutting rates than markets now anticipate.Capital Economics strategists wrote in a note Thursday.
The firm expects 21 of the world’s 30 major central banks to cut rates around this time next year.
“Despite all the talk of ‘higher for longer’, we believe the global monetary policy tightening cycle is coming to an end,” wrote the signature.
Source: Ambito
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