The Fed has “a tremendous ability” to send bond yields higher, particularly after debt purchases ballooned its balance sheet to a record $4.5 trillion, said Rosenberg, chief fixed- income strategist for the world’s biggest asset manager.
Rate Outlooks
Rosenberg predicts 10-year Treasury yields will climb about 0.7 percentage point to 2.5 percent by year-end. That’s about in line with the median forecast of 75 analysts in a Bloomberg survey.
“We don’t think the Fed needs to worry about a conundrum 2.0,” he said.
Benchmark yields have fallen this year in spite of the Fed’s talk of raising rates for the first time since 2006. While policy makers last month dropped their commitment to be “patient” before tightening, they also moved closer to the market’s view by cutting their outlook for borrowing costs.
Fed officials now predict benchmark rates at the end of this year of 0.625 percent, down from a December estimate of 1.125 percent. The market adjusted lower too, and priced in a rate of 0.34 percent, based on data compiled by Bloomberg.
The spread between the Fed’s target rate for overnight loans and yields on 10-year Treasuries suggests nothing’s really out of whack. The spread is 1.58 percentage points, versus its average of 1.47 points during the past 20 years.
“If the burden of proof is on anybody, it’s on the Fed,” said Stewart Taylor, a Boston-based money manager at Eaton Vance Management, which oversees $86 billion in debt.