With increasing investor sentiment that the economic recovery is gaining steam, many bond analysts are predicting a subsequent rise in Treasury yields. Coupled with the fact that the Fed will be ending it’s program to purchase up to $300 billion in Treasuries sometime in October, there is a general feeling that yields have no where to go but up.
We likely going to see more and more investors leaving the safe haven of Treasuries and seeking higher returns in the next few months. The Fed is still expected to keep it’s targeted Federal Funds rate at between 0% and .25% when it meets this week.
As talk of the government’s exit strategy also gains steam we are also likely to see traders start to price in future Fed rate hikes, although that’s still premature at this time. Based on futures options most investors believe the Fed will keep rates at their current level at least until next summer or fall.
However, unless the economy starts to falter once again, the forces behind higher yields are likely to gain in strength over the next few months. There’s going to be a lot of Treasury supply coming down the pipe for an extended period of time, especially with government projections that the national debt will likely double once again in the next decade.
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