US Treasuries rallied on Friday in the wake of a mixed Employment Report for April. But Capital Economics says the respite is only likely to be temporary.Despite Friday’s move, yields have increased quite significantly since mid-Jan. This can largely be attributed to the recovery in the price of oil since then, which has led to a rise in “inflation compensation” (the gap between nominal and real yields). As fears about deflation have subsided, investors have begun to reconsider how rapidly the federal funds rate is likely to be raised in the coming years. “There is still a large wedge between our forecast of where that rate will be at the end of next year (a range of 2.75-3.0%) and the rate implied by the “risk-neutral” Treasury yields estimated at the Fed. Accordingly, we continue to forecast the 10-year Treasury yield to drift up to 3% by end-2016, from around 2.1% now.” says Capital Economics
The material has been provided by InstaForex Company – www.instaforex.com