Share:

Implied real yields for US Treasuries have stayed anchored even as the Federal Reserve indicated at June’s FOMC meeting that normalization is upcoming. While it has been clearly communicated that the Fed has shifted to an Average Inflation Targeting (AIT) regime, strategists at DBS Bank are not convinced that real rates should be this low.

Real yields not reflecting upcoming Fed normalization

“Inflation has been more persistent and higher than expected over the past few months. It is unclear if supply side constraints would ease up in the near term. The Fed has generally stuck to its transitory inflation view but we think that risks may be tilted to the upside. In any case, excessively loose monetary policy may not increase output or employment but may worsen price pressures and distort market signals further.” 

“We think that growth risks may be overpriced in US Treasuries. To be sure, the Delta variant dented global (and the US) growth in 3Q but we may well have crested this wave, with global COVID-19 cases ticking down. Meanwhile, vaccinations are progressing with more parts of the world ready to open up as herd resilience get within sight.”

“Real yields should rise as market participants recognize that we may be past peak Delta fears and a period of recovery could lie ahead. Moreover, we are not convinced that the Fed would want real yields to stay this low when they shift focus towards inflation and normalization. Assuming long-term US inflation of 2% and neutral real yields of between -0.5 to zero percent, nominal 10Y yields can comfortably hover in the 1.5-2.0% range (similar to levels seen pre-pandemic).”

 

Share: Feed news

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.

Follow us on Telegram

Stay updated of all the news

Join Telegram

Recommended content


Follow us on Telegram

Stay updated of all the news

Join Telegram

Recommended content

Editors’ Picks

AUD/USD eases toward 0.6650 after dismal Aussie trade data

AUD/USD eases toward 0.6650 after dismal Aussie trade data

AUD/USD has stalled its advance and reverted toward 0.6650 after the Australian Trade Surplus shrank more than expected in April. The renewed uptick in the US Dollar amid firmer US Treasury bond yields are capping the pair's upside. US data next in focus. 

AUD/USD News

EUR/USD regains 1.0700 as US Dollar stays on the back foot

EUR/USD regains 1.0700 as US Dollar stays on the back foot

EUR/USD is trading above 1.0700, as bulls keep the reins for the second consecutive day early Thursday. The major currency pair fails to justify looming economic fears and upbeat US Treasury bond yields amid a broadly weaker US Dollar. Final Eurozone Q1 GDP eyed. 

EUR/USD News

Gold: 100 DMA appears a tough nut to crack for sellers Premium

Gold: 100 DMA appears a tough nut to crack for sellers

Gold price is attempting a bounce from near the $1,940 region early Thursday. Gold price shredded 1% in Wednesday’s trading after the US Treasury bond yields spiked on the surprise rate hike decision announced by the Bank of Canada (BoC), following a pause since March.

Gold News

Dogecoin price could rally 30% if DOGE history over the last six months is enough to go by

Dogecoin price could rally 30% if DOGE history over the last six months is enough to go by

Dogecoin price has been trading within a fixed range over the last six months, taking seasonal leaps as volatility increased. With this accumulation pattern, the king of meme coins could be en route to complete the next bounce cycle.

Read more

Is the meltdown happening?

Is the meltdown happening?

It feels like the US economy just left the highest level tower. Just dived off. With the full free-fall ramifications only now beginning to truly seep into the consciousness of investors. As is often the case, the real world Main Street situation can have a long lead time on major stock market price shifts.

Read more

Forex MAJORS

Cryptocurrencies

Signatures