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Treasury Yields Stuck Despite Fed’s Best Effort

Expectations for inflation are near all-time lows and that’s why the yield on the benchmark 10 year Treasury bond, now at 1.8%, will likely finish the year barely above 2%.

Expectations for inflation are near all-time lows and that’s why the yield on the benchmark 10 year Treasury bond, now at 1.8%, will likely finish the year barely above 2%, said Guy Lebas, fixed income strategist at Janney. “We are looking at a market expected rate of inflation over the next decade below 1.5%,” said Lebas. “In that environment it’s just hard for ten year interest rates to rise that much higher than that 2% mark.” Lebas said the Federal Reserve feels confident that inflation is going to rise. He calls Fed Chairwoman and her ilk “inflation faithfuls”. On the other hand, the market is full of what he calls “inflation atheists” who see deflation on the horizon. Lebas, however, considers himself an “inflation agnostic”, saying that “we can’t know what causes inflation in the short term and that is the key factor that is going to turn the Fed’s decision over a one to two year horizon.”

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