Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

Recession may force Fed rate cut in 2023, sending Treasury yields lower -BofA

Published 11/29/2022, 01:20 PM
Updated 11/29/2022, 01:32 PM
© Reuters. FILE PHOTO: A Bank of America sign is shown on a building in downtown Los Angeles, California January 15, 2014. REUTERS/Mike Blake/File Photo

© Reuters. FILE PHOTO: A Bank of America sign is shown on a building in downtown Los Angeles, California January 15, 2014. REUTERS/Mike Blake/File Photo

By Davide Barbuscia

NEW YORK (Reuters) - Benchmark U.S. Treasury 10-year yields will fall next year as the Federal Reserve slows monetary tightening and eventually cuts interest rates to stimulate a dwindling economy, according to a forecast from Bank of America (NYSE:BAC) (BofA).

BofA believes the U.S. economy will enter a recession around the middle of next year, pushing the Fed to cut rates at the end of 2023 and sending yields - which move inversely to prices - lower across the curve, said Mark Cabana, head of U.S. Rates Strategy at BofA, in a media presentation.

The projected slowdown in rate hikes will also tamp down some of the volatility that has plagued investors this year, which saw sharp declines in prices for stocks and bonds, Cabana said.

"The Fed is likely going to show signs of becoming successful in their attempt to rein in inflation by softening the labor market," he said. "That's probably also going to be allowing for volatility within rates and across markets to compress to some extent."

The Fed has raised interest rates by 375 basis points so far this year as it attempts to bring down the highest inflation in decades.

Cabana expects the central bank to increase rates three more times until reaching a terminal rate of 5.25% in March. Policymakers will likely begin cutting rates in December 2023, he said.

© Reuters. FILE PHOTO: A Bank of America sign is shown on a building in downtown Los Angeles, California January 15, 2014. REUTERS/Mike Blake/File Photo

Ten-year Treasury yields - a global benchmark for a swathe of other asset classes - are set to decline from 4% in the first quarter next year to 3.25% by year end, Cabana said. They recently stood at 3.73% and hit about 4.3% this year, their highest since 2007.

The yield curve that compares two-year and 10-year yields - seen by many as a harbinger of an upcoming economic contraction when inverted - will likely steepen to the point of being flat by the end of next year, Cabana said. It is currently deep in negative territory at -74 basis points.

Latest comments

Yep.
Bank of America has no idea what they are doing.
Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.