As Bond Bears Grumble, Investors From Pimco to DWS Gear Up to Buy the Dip

Traders surprised by this year’s painful rise in bond yields are still looking to snap up US debt given their ongoing assumption the US economy will eventually slow in 2024.

The economy has broadly outperformed forecasts at the start of 2024, prompting investors to drastically ratchet back wagers for Federal Reserve interest-rate cuts and imposing losses for the year on those who began the year favoring bonds.

It’s not the first time the economy’s resilience has caught traders wrong-footed. And for some, it’s a reason to surrender and accept the reality of higher-for-longer rates and the possibility of another run-up in yields — even to the highs of 5% reached last year.

But for those convinced the ultimate trajectory of rates is down, the time is getting ripe to dial up exposure to the world’s biggest bond market.

Managers at Pacific Investment Management Co., T.Rowe Price, DWS Investment Management Americas, and BNY Mellon Wealth Management are all in this camp. They see any further spikes in Treasury yields across the five- to 10-year sector toward 4.5% as a compelling purchasing opportunity.

With inflation having come down sharply from where it was when yields reached their peaks of last year, “4.5% is the new 5%” and a good place to buy, says Michael Cudzil, a portfolio manager at Pimco. “We are very much closer to adding back duration and getting overweight duration relative to our benchmarks.”

Patient Buyers of Treasuries Target 4.5%