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Government bond yields haven’t peaked yet as experts say the 10-year rate could hit 2%.

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A trader on the New York Stock Exchange (NYSE) on Wall Street in New York City.

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According to Jurrien Timmer of Fidelity Investments, 10-year US Treasury bond yields could be an inch higher, but that may not pose a risk to financial markets.

“I think the yields could go a little higher. So far they have been up to 1.75%. I have a simple bond model that suggests 2% should be the cap,” said Timmer, director of global macro at the firm said CNBC “Squawk Box Asia” on Tuesday.

The yield on the 10-year benchmark Treasury note surged over 1.7% last Thursday, its highest level in more than a year. It did so despite assurances from the Federal Reserve that it had no plans to raise interest rates anytime soon or to simplify its bond purchase program.

Timmer also downplayed concerns that the recent surge in bond yields and inflation expectations could mean a repeat of the 2013 “taper tantrum”. At that point, government bond yields suddenly spiked on the market panic after the Fed announced it was cutting back on its quantitative easing program.

“So far, returns have risen 125 basis points. Half of them are real returns. Half of them are inflation. For now, I think that’s okay,” said Timmer. In 2013, “it was all real returns that were up nearly 200 basis points in six weeks. If we saw anything like this, it would be a pretty big shock to the system,” he added.

Following the conclusion of the Fed’s two-day political meeting last Wednesday, the central bank announced that it sees stronger economic growth than previously thought and forecasts that gross domestic product will rise to 6.5% in 2021. This is higher than the forecast GDP growth of 4.2% in December.

The Fed also expects core inflation to hit 2.2% this year, but expects it to stay around 2% in the long term.

David Bailin, chief investment officer and managing director of Citi Private Bank, shared a similar opinion, telling Squawk Box Asia that government bond yields have not yet peaked.

“There is no doubt that we are not done with the rate hikes because we are just entering the new economic cycle. All momentum is ahead of us,” said Bailin, referring to the coronavirus aid package recently signed by Biden in the amount of 1, $ 9 trillion administration earlier this month.

He added that financial markets are currently going through an adjustment phase and are having to get used to higher interest rates on government bonds.

“It could be between 2% and 2.5% in a year. And we certainly believe that the economy, which is growing by 4% plus, can tolerate this.”

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Katherine Clark