The bears in the Treasury market are proving steadfast in their bets on higher yields, even as U.S. government debt is on pace for its biggest quarterly gain since the pandemic struck early last year.
The Federal Reserve’s hawkish shift this month dealt a blow to wagers on a selloff in Treasuries and a steeper yield curve by briefly tamping down inflation concerns. The benchmark 10-year rate is around 25 basis points below the 14-month peak touched at the end of March. That drop has helped spur the market’s roughly 1.5% gain this quarter, shaving 2021 losses to about 2.8%, according to Bloomberg Barclays index data through June 24.
But many predicting higher 10-year yields by year-end see little having changed to alter their case, which is based in large part on expectations for the economy to continue to rebound and inflation to present more than a temporary threat.
Growing speculation that the Fed will begin tapering its bond buying in 2021 has only emboldened their view. Short bets on Treasuries remain near the highest levels of the past few years, even after a sharp pullback following the Fed meeting, a JPMorgan Chase & Co. client survey shows.