“The trend of higher rates is definitely not going to go away overnight,” said Kathryn Kaminski, chief research strategist and portfolio manager at AlphaSimplex Group, whose public mutual fund is net-short fixed income and up more than 34% this year. “But we have seen volatility continually increasing throughout the year. So the relative strength of the bearish signal relative to volatility has become less strong.”
Moreover, there have been additional signs of weakening growth and easing inflationary pressures. The consumer price gauge targeted by the Fed rose at a slower-than-anticipated pace in October, a report out Thursday showed.
In the coming week, investors will watch data on the service economy, producer prices, and inflation expectations for further signs of how rate hikes are affecting the economy. Fed policy makers won’t be speaking ahead of the mid-December meeting, when the central bank will update its economic projections.
Expectations that tighter monetary policy will slow the economy have driven the longest-dated bonds to the biggest gains since early November, with 30-year yields falling again Friday. But short-dated securities have also advanced over the past month, highlighting the appeal of the higher coupon payments to investors looking to eke out a return until they mature.
“We do hear that advisers on the retail side are happy to put clients into a 4% yielding investment for the next two years,” said Scott Solomon, associate portfolio manager at T. Rowe Price.
This article was provided by Bloomberg News.