Although the yield on ten-year US bonds, the most popular among investors, has declined from a high of 5.0% last October to 4.0%, investors still have concerns about the bond market. Analysts believe that US bond yields face challenges next year, 2024.
A report in the Wall Street Journal on Saturday says that the US bond market could still face many challenges during the new year 2024. It is expected that the growing fiscal deficit in the budget will lead to another flood of US Treasury bonds, and thus more will be needed. of companies to refinance their low-rated debt.
The report suggests that the final stages of the Federal Reserve’s battle against inflation will be the most difficult. Fears that interest rates would continue to rise for a long period in the United States of America had pushed yields to their highest levels in a decade, and also put pressure on the banking system, which faced some bankruptcies among small and medium banks in the first quarter of this year.
High interest rates harm the US economy by increasing borrowing costs on mortgages, corporate loans, and other forms of debt. Investors and economists expect that the economy will be able to have a soft landing and that inflation will subside without unemployment or recession rates rising.
In this regard, the newspaper quotes analysts that the American economy still faces some risks. George Burry, chief investment strategist for fixed income at Allspring Global Investments, says that the risks to the macroeconomy depend on the largest assumption in the market, which is whether inflation will decline to reach the Federal Reserve’s target of 2%? Puri is among those who believe that the most difficult part of the inflation battle is whether the central bank will be able to achieve the inflation and growth equation at the same time, even if the core personal consumption expenditures index will decline to 2% from the last 3.2%.
US Treasury Secretary Janet Yellen said this December that she did not believe the last mile to defeat inflation would be “particularly difficult.”
According to the Wall Street Journal, Puri believes that “inflation will decrease, but not as much as the market thinks.” “Eventually reaching 2% will be difficult for the Fed without a noticeable slowdown in economic growth,” he adds.
Puri does not rule out a range of outcomes that could cause Treasury yields to fall or push them higher. If high borrowing costs eventually stifle the economy, he says, a recession could drag long-term US bond yields closer to 3%. At the same time, accelerating inflation could be “hugely damaging to economic growth,” putting the possibility of the 10-year bond yield rising to 6% on the horizon.
For his part, James St. Aubyn, chief investment officer at Sierra Mutual Funds, is concerned that higher interest rates and stricter lending standards by bankers are starting to affect the economy.
“These two things in concert usually put a lot of pressure on the economy and eventually push it into recession,” he said. He added: “We should not ignore the long and variable delays in monetary policy, and I believe that is the case now.”
2023-12-30 14:05:29
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