Bond Market Sees No End to Tumult as Fed Casts a Hawkish Shadow

Across Wall Street, there’s growing relief that the Federal Reserve — at long last — may be done raising interest rates. But that doesn’t mean turbulence in the bond market will soon become a thing of the past.

Investors anticipate that US Treasuries will continue to be whipsawed by heightened volatility as economic uncertainty threatens to alter the central bank’s path or keep rates pinned higher for far longer than traders currently expect.

Already, some Fed officials are underscoring that there may still be more work to do as inflation continues to hold above its 2% target despite the most aggressive monetary policy tightening in four decades. At Barclays, strategists have advised clients to sell two-year Treasuries in anticipation that rates will remain elevated next year, bucking broader speculation that the Fed will initiate a series of rate cuts as soon as March. And benchmark 10-year yields — a baseline for the broader financial system — are pushing back toward last year’s highs.

“The rise in long-dated yields has been driven by the hawkish message from the Fed,” said Rob Waldner, chief strategist of fixed income at Invesco. “The central bank is staying hawkish and that’s keeping uncertainty high.”

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