Investors should consider selling 10-year Treasuries as the resilience of the world’s largest economy makes the recent US bond rally look overdone, according to Barclays Plc.
Yields on the global funding benchmark have fallen nearly 30 basis points from this year’s peak of 4.35% as traders bet the Federal Reserve will cut interest rates sooner rather than later. The drop in yields is “odd” given US economic data have proved stronger than expected in recent weeks, strategists including Anshul Pradhan and Amrut Nashikkar wrote in a note.
“Incoming data suggests that the US economy remains resilient with the labor market generating solid real income growth while simultaneously rebalancing for now,” the strategists wrote. “The rally over the last few weeks seems excessive and we recommend shorting 10-year US Treasuries.”
Wagers on the timing and speed of the Fed’s anticipated pivot toward policy easing have shifted back and forth since 2024 began, as often-conflicting data signals and central bank officials’ rhetoric prompted traders to reassess their assumptions. Barclays’ bearish bond call came after a mixed bag of US jobs data and ahead of Tuesday’s crucial inflation reading.
Swaps traders have penciled in just under four quarter-points of easing by the end of this year, with the first cut fully priced in for July. Fed Chairman Jerome Powell and his colleagues signaled last week that the central bank was moving closer to dialing back its fight against inflation, bolstering confidence that rate cuts are likely nearer than not.
Barclays said an increase in supply in coming months and the Fed’s aim to reduce its overall debt maturity also warrant caution, alongside strong data.
“We believe soft data is again likely misleading — as it was all of last year — and the economic fundamentals remain strong,” they wrote. While the Fed still seems to be sticking to its baseline of rate cuts starting this year, “the case for a meaningful easing cycle has weakened in our view.”
This article was provided by Bloomberg News.