June 18, 2024

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Economists: Geopolitical, economic uncertainty rock Treasury bond market

2 min read

A surprisingly strong US economy and mixed signals from the Federal Reserve have fueled some of the wildest swings in Treasuries in recent memory. Add geopolitical angst and a surge in debt supply and you have a recipe for sustained volatility for months to come, market watchers say.

Dubbed the “world’s safest asset,” Treasuries have proven anything but recently as dramatic moves in yields become an almost daily occurrence. Just this week, the rate on the 10-year swung in a range of almost 40 basis points, buffeted by crosscurrents including resilient retail sales and jobless figures, a bevy of comments from Fed officials and rising demand for haven assets amid concerns of an escalating conflict in the Middle East.

“It’s going to be a rough ride, so buckle up,” Mike Schumacher, head of macro strategy at Wells Fargo Securities, said this week on Bloomberg TV. Interest-rate volatility should “remain quite high, at least through the mid-point of next year, perhaps further as the Middle East sorts itself out” and until the market gets more clarity on the Fed.

The ICE BofA MOVE Index, which tracks anticipated swings in Treasury yields priced into one-month options, has risen for five-straight weeks. In fact, by one measure, swings in long-term rates are exceeding those for equities by the most in at least 18 years, according to data compiled by Bloomberg.

That’s partly because the Fed is struggling to signal a longer-term vision for where interest-rate policy is headed, according to Mohamed El-Erian, the chief economic adviser at Allianz SE and a Bloomberg Opinion columnist.

“We are going to remain in this situation of great uncertainty because there is no vision as to where this economy is going,” El-Erian said on Bloomberg TV Friday. “They need to pivot from excessive data dependence to data dependence that has a greater forward-looking component.”

Amid the past week’s ructions, nothing caused more chaos than…

Liz Capo McCormick, Michael Mackenzie, Bloomberg

2023-10-22 11:19:47

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