From Investing.com:

In 2024, bond traders are optimistic and engaging in the bond market with confidence, expecting Federal Reserve rate cuts. Despite a temporary dip in bond prices due to strong jobs data, traders are eager to capitalize on the 4.1% yields of 10-year Treasury bonds, reflecting a positive shift in market sentiment. There’s a growing belief in the bond market’s recovery.

Strategists and portfolio managers believe that yields between 4% and 4.2% present a buying opportunity, with expectations that the Fed might ease its policy by March. TD Securities strategists are forecasting a 3% yield by year-end, considering a cooling labor market. The state of the labor market is crucial for the Fed as it balances economic growth against the risks of inflation.

The bond market has remained confident in its 2024 rally, despite a temporary dip due to strong employment data. Investors are seizing on the 4% yields as a buying opportunity, with upcoming inflation data and a 10-year Treasury auction serving as crucial tests for the rally’s staying power.

The recent pullback in bond prices presented an entry point for investors, despite robust economic indicators. Significant firms like JPMorgan are eyeing 4%-4.2% as ideal entry points, with market bets leaning towards easing by March. Short-term volatility remains a possibility, especially for two-year bonds sensitive to changes in rate-cut bets.

At this point, the bond rally’s success hinges on the dovish Fed policy converging with downward pressure on inflation, while not all market segments are equally insulated from potential losses. Two-year bonds, sensitive to policy changes, may face repricing challenges, and the Fed’s decision-making will be heavily influenced by inflation trends, with hopes for bond yields to drop below 3.5%.

The upcoming December CPI reading and further Fed commentary will be closely watched for signs of confirmation or a potential shift in the narrative. Bond yields across the curve are expected to fall by year-end, presenting a “bull-steepening trend,” according to Bloomberg Intelligence. The overall sentiment leans towards lower yields later in the year.



Read more: Traders Capitalize on High Yields with Confidence in Fed Cuts By Quiver Quantitative