Bonds

Top Fed officials are coalescing around the idea that tighter financial conditions after a recent surge in U.S. Treasury yields may substitute for additional increases in their benchmark interest rate.

While individuals are piling into cash, for many portfolio managers the debate now is about how far to go in the other direction.

Stock futures fluctuated on Wednesday as the latest data showed the U.S. economy expanded at a slower rate than previously thought in the second quarter, fueling speculation the Federal Reserve is nearing the end of its rate-hike cycle.

Federal Reserve officials are more seriously discussing the possibility that they may not have to stop shrinking their massive balance sheet when they begin cutting interest rates, a readout from their most recent policy meeting showed. 

The yield on 30-year securities has climbed almost 25 basis points over the past three sessions, returning it to levels last seen in mid-November when inflation was still above 7%, more than double the current rate. Ten-year borrowing costs rose to around 4.15%. 

Wall Street securities dealers expect a glut of Treasury sales to start coming soon as the government steps up its borrowing.

In their latest assessment of the bond market outlook, Morgan Stanley strategists are challenging the former head of the Federal Reserve Bank of New York's view that losses are likely to deepen.

Bond traders have overestimated month-over-month headline inflation heading into four of the last seven Consumer Price Index releases, says strategist Raghav Datla.

Two-year Treasury yields slid a percentage point over three days in March, the most since 1982. Gone are the days when inflation was the main menace.

Excess returns on the bonds, which compares mortgage backed security performance to Treasuries, are -0.94% for March, on track for the worst relative performance since September.

The shift in short-term interest rate markets Monday was unlike almost anything seen for more than four decades, including even the 2008 financial crisis and the aftermath of the Sept. 11 terror attacks. 

But even if plowing back into Treasuries proves to be a winning trade, sticking with it won't be for the faint of heart. 

U.S. government bonds slid across the curve, with the 10-year rate heading for the highest close since Nov. 9.

Only about $4.27 billion of the bonds have been issued so far this year, down from $29.38 billion at this same point last year, according to data compiled by Bloomberg based on deals without government backing.

Bond traders are girding for the risk that Federal Reserve Chair Jerome Powell is ready, willing and able to plunge the U.S. into recession to get the inflation bogey under control.

Yields have jumped so much this year, nearly doubling those on 10-year Treasuries, that it recalls past buying opportunities that paid off when the tide turned.

U.S. Treasuries tumbled Monday, driving the yield on five-year notes to the highest level since September 2008 amid speculation persistent inflation will prompt the Federal Reserve to tighten policy more aggressively.

Stocks wavered while bonds fell as investors braced for the biggest Federal Reserve hike since 2000 and awaited more clues on how aggressively the central bank will tackle inflation.

Traders of U.S. government debt were dealt a stern reminder last week not to sleep on a market that’s been headed in one direction for a long time.

The Federal Open Market Committee is all but certain to raise rates by a quarter percentage point at the conclusion of its two-day policy meeting.