"We have recently turned neutral from bearish on bonds," James Caron, head of U.S. interest rate strategy at Morgan Stanley in New York, wrote in a report last week.
Goldman Sachs, also based in New York, abandoned its call for investors to set up trades that would profit from a drop in five-year notes, Francesco Garzarelli, the firm's London-based chief interest-rate strategist, wrote in a report.
"Right now we're keeping monetary policy accommodative," Eric Rosengren, president of the Federal Reserve Bank of Boston, said in an interview on Bloomberg Television May 5. Asked whether a third round of quantitative easing was under consideration, Rosengren said that "nothing's off the table, it depends on economic conditions, so we have to do whatever makes sense given our outlook for the economy."
A bond market measure of inflation expectations the Fed uses to help determine monetary policy was at 3.03 percentage points, compared with 2.82 percentage points on March 23. It reached a 10-month high of 3.28 percentage points in December. The five-year, five-year forward break-even rate projects what the pace of consumer price increases may be, beginning in 2016. It averaged 2.78 percentage points over the past five years.
"Until there are significant worries about inflation and a bigger pickup in growth the Fed is under no pressure to move," said William Cunningham, co-head of global active fixed-income in Boston at State Street Global Advisors, which oversees $2.1 trillion.