Bond Bulls Ignore Fed-Hike Noise and Keep Buying Yield Spikes

For over a year, bond traders have been whipsawed by uncertainty about how high the Federal Reserve will push interest rates.

But that’s now giving way to a growing conviction that longer-term Treasury yields have likely already peaked — and that unexpected selloffs that give yields a bit of an extra bump up look like good times to buy.

The shift may inject some stability into a bond market that’s been consistently caught off guard by how resilient the US economy has remained as the Fed raised interest rates by five percentage points since March 2022. The dynamic was underscored Friday when bonds slid after a report showed employers unexpectedly accelerated the pace of hiring in May.

At the same time, a slowdown in the pace of wage gains and a rise in the unemployment rate indicated the central bank may finally be guiding the economy to a slowdown, albeit one that it hopes will be relatively gentle. That may effectively put a cap on long-term bond yields even as short-term ones remain volatile while traders try to game out the final plays of the Fed’s policy tightening campaign.

“The 5-year and 10-year have been the sweet spot for us, and we’ve been buying there,” said Scott Solomon, a fixed-income portfolio manager at T. Rowe Price.

Treasury Yields Pulled Back After Recent Run Up | US securities found buyers after selloff