Treasuries a whisker away from erasing 2024 losses on rate bets

NEW YORK: US Treasuries are on the brink of breaking even during a roller coaster first half of the year.

A Bloomberg gauge of returns in the world’s biggest bond market is now down just 0.1% for 2024, after having lost as much as 3.4% for the year in April.

At the heart of the rebound are investor bets that cooling US prices will convince the Federal Reserve (Fed) to cut interest rates sooner and by more than officials have signalled, effectively putting a lid on how high Treasury yields can climb.

“We’ve seen the peak in yields,” said Stephen Miller, four-decade market veteran and investment strategist at GSFM in Sydney.

“Bonds are now back as having a deserved place in a multi-asset portfolio.”

Treasuries have been whipsawed this year, with policy-sensitive two-year yields surging above 5% in April as fears over higher-for-longer US rates spurred investors to dump bonds.

They have since dropped back to around 4.70% as inflation-to-retail-sales data suggested the world’s biggest economy may finally be cooling enough to warrant lower borrowing costs.

Traders are positioning for the Fed to push through about two-quarter point cuts this year, with the first move fully priced in for November, based on swaps.

That’s despite the fact a number of Fed officials on Tuesday said they needed more evidence that prices were easing before cutting rates.

Fed governor Adriana Kugler said it will likely be appropriate for the central bank to reduce rates “sometime later this year” if economic conditions unfold as anticipated. St. Louis Fed president Alberto Musalem said in his first major policy speech that it could take “quarters” for the data to support a cut.

Rachana Mehta sees the Treasury 10-year yield in a broad range of about 4.2% to 4.5% with movements toward the top of that a good window to buy.

“The volatility we saw in the past, hopefully it has died down given the recent US data,” said Mehta, co-head of regional fixed income at Maybank Asset Management, speaking in an interview with Bloomberg Television.

“You can continue to be long duration at about 4.4% to 4.5% in 10-year Treasuries.” — Bloomberg