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HomeMarketsBond market sitting on a ‘powder keg,’ says ING strategist

Bond market sitting on a ‘powder keg,’ says ING strategist

Investors looking to recover from last week’s U.S. bond-market selloff may not get much rest.

“The bond market has been sitting on a powder keg since last week. Attitude towards duration among fixed income investors has grown cautious, to put it mildly,” said Padhraic Garvey, regional head of research for the Americas at ING, in a Thursday note, and forecasted the 10-year note rate to climb as high as 2% this year.

Fears that trillions of dollars in fiscal stimulus from Congress would force the Federal Reserve to remove policy accommodation earlier than it anticipated helped send bond prices lower and the 10-year Treasury note yield
TMUBMUSD10Y,
1.567%

to 1.60% last Thursday, by some estimates.

That move also spilled into other pockets of Wall Street. Last week, the Dow
DJIA,
+1.85%

lost 1.8%, the S&P 500
SPX,
+1.95%

fell 2.5%, and the Nasdaq Composite
COMP,
+1.55%

was off 4.9%.

See: Gauge of bond-market inflation expectations hits highest since 2008

Since then, the benchmark bond maturity has found its footing. The 10-year note has mostly traded below 1.50% throughout this week.

Still, the rapid run-up in bond yields over the past few weeks has put Treasurys on pace for their first negative annual return since 2013, the year of the so-called “taper tantrum”, according to Bloomberg data.

“In this context, we do not blame investors for exiting at the first sign of a sell-off,” said Garvey.

He did find some signs the bearish impulses in the bond market were wearing out, however, noting the 5-year note yield was depressed relative to the 2-year and 10-year. In the past, the sharp rise in the short-dated maturity has portended a broader and more painful bond-market selloff.

Read: History suggests surge in bond-market rates is unlikely to last, says Guggenheim’s Minerd

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