3 Minutes to Read (Reuters) – NEW YORK (Reuters) – In contrast to the first quarter, when an unexpected rise in yields encouraged many analysts to raise their projections, some investors are wagering that U.S. government bond yields will remain modest or continue to weaken in the second half of the year. PHOTO FROM THE FILE: On May 22, 2020, the New York Stock Exchange (NYSE) in New York, New York, United States, has a nearly empty trading floor. REUTERS/File Photo/Brendan McDermid Yields on US Treasuries have fallen sharply since peaking at pre-pandemic levels in March, as weaker-than-expected employment numbers in April and May prompted concerns about the economy’s future strength. On Friday morning, the government jobs report for June will be released. Investors are struggling to read signals from the Federal Reserve about how hot it is willing to let inflation run before withdrawing pandemic-era monetary support, which has caused yields to fluctuate. Since its March high of 1.776 percent, the benchmark 10-year yield, which moves inversely to price, has declined nearly 30 basis points. According to a June 14 survey of JPMorgan clients, short holdings in Treasuries reached their highest level since 2017. Since then, bearish positions have dropped, but they are still significantly over their 52-week average. Derivatives have also been used by certain traders to wager on reduced rates. According to data from Chris Murphy, co-head of derivatives strategy at Susquehanna International Group, one investor put on a $5.8 million options bet on Wednesday that would pay out if the iShares 20+ Year Treasury Bond exchange traded fund moves higher. The ETF monitors the price of longer-term Treasury bonds. “We believe the global economy’s year-over-year growth rate peaked in the second quarter,” Matt Miskin, co-chief investment strategist at John Hancock Investment Management, said. “As a result, we see more downside risks to yields than upside opportunities, and we expect a 1.5 percent 10-year by year’s end.” Not everyone is in agreement. The unprecedented reopening of the US economy, according to Robin Brooks, head economist at the Institute of International Finance, could eventually produce data prints that surpass expectations, possibly while the Fed begins to explore cutting its government bond purchases. In a recent note, he predicted that this would push yields higher. “We still see space for the 10-year Treasury yield to rise further this year,” Brooks wrote, “with our year-end projection staying at 2.5 percent.” Kate Duguid contributed reporting, and Ira Iosebashvili and Dan Grebler edited the piece./n
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