Bond rebound suggests US growth has legs
Bond bears have been ascendant for most of April, and now they're looking to a key batch of data to determine whether 10-year Treasury yields' rebound from a 15-month low has legs.
While the angst over a Chinese slowdown that drove last month's bond rally has eased, questions linger about the global outlook as malaise in Europe persists.
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This week brings an update on the world's biggest economy, with a read on first-quarter US growth that's expected to be less dire than originally predicted though far short of a blockbuster.
Reports on actual and expected inflation, both at the heart of Federal Reserve policy making now, are also on traders' radar.
The benchmark 10-year yield touched 2.61pc last week, the highest since the Fed surprised traders in March by shifting to a more dovish stance. It settled at 2.56pc, up from 2.34pc on March 28, the lowest since December 2017.
Traders are now pricing in a bit more than half of a quarter-point rate reduction this year, whereas a few weeks ago they were ready for more than a full cut.
"We at this point in time don't have a high level of conviction on the direction of interest rates," said Margaret Steinbach, a fixed-income investment specialist at Capital Group.
"But given what we know in terms of economic data still being pretty strong in the US, it seems the fall in yields was too extreme," said the fund manager. The message that US economic growth fears were overdone is also emerging at Goldman Sachs.
"Key downside risks to US growth are fading from view," Goldman analysts wrote in a report which was released last Thursday.