Yields on U.S. 2-year Treasury notes have plunged over 100 basis points following the failure of some regional U.S. banks last month. They had peaked above 5% on March 8 following hawkish testimony from Federal Reserve Chair Jerome Powell.
While Fed rhetoric since then has softened a bit, policymakers have by and large reiterated their focus on taming inflation, running at more than twice the 2% target, and so at minimum one more interest rate rise in May is still in store.
But markets are pricing for a series of interest rate cuts starting just two months later, underscoring an exceptionally large divergence from the central bank’s own view.
That recent downward trend in yields is forecast to continue further, according to the April 5-12 poll of over 60 bond strategists.
While yield forecasts were largely downgraded across maturities from last month, the outlook for the short end of the yield curve, which is most sensitive to policy rate changes,…
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