Hawkish Powell Likely to Push US Treasury Yields Higher... Wall Street Seeks Bargain Buying Opportunity

Jerome Powell, Chairman of the U.S. Federal Reserve (Fed), is expected to deliver hawkish (favoring monetary tightening) remarks before Congress this week, leading to speculation that Treasury yields may rise further in the near term. On Wall Street, there is also advice to view this rise in Treasury yields (fall in Treasury prices) as a 'Buy the dip' opportunity. This is based on the belief that, despite recent retreat in early rate cut expectations, rate cuts will eventually be implemented within the year.

According to Bloomberg on the 3rd (local time), Wall Street investment firms such as Capital Group and Apollo Management have suggested that the upper bound for U.S. 5- and 10-year Treasury yields should be set between 4.5% and 5.0%. They forecast that Treasury yields will continue to rise for the time being due to stronger-than-expected U.S. economic indicators and inflation concerns. As of this day, the 10-year yield stands at around 4.2%, up from 3.84% at the beginning of the year.

The expectation that Fed officials, including Chairman Powell, will deliver hawkish remarks this week further supports this outlook. Powell is scheduled to appear before Congress on June 6-7, where he is expected to reaffirm that the fight against inflation is not over and that the Fed will not rush into cutting interest rates. Capital Group noted that if the option of a rate cut within the year disappears from the table due to solid growth trajectory indicators of the U.S. economy, Treasury yields could exceed 5%.

Accordingly, there are also signs of increased Treasury buying on Wall Street. The report conveyed the sentiment that "for those confident that the trajectory of benchmark interest rates will ultimately decline, the opportunity to invest in Treasuries is ripening." A rise in Treasury yields means a fall in Treasury prices. Investing when 5- and 10-year Treasury yields are at their peak could maximize investors' returns in the future when benchmark rates are cut.

Michael Kurzius, a portfolio manager at PIMCO, stated, “Inflation is significantly lower now compared to when it peaked last year,” adding, “The current 5- and 10-year Treasury yields at 4.5% are equivalent to last year’s 5%. It’s a good buying range.” George Katramvon, head of bonds at DWS, said, “The Treasury market is now closer to the Fed’s policy outlook for this year,” advising investment in the event of further Treasury yield increases. Bartolini of T. Rowe Price mentioned, “If the 5- and 10-year bond yields exceed 4.4%, we can shift from a reduced weighting position to a buying position.”

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