Higher U.S. Treasury Yields Seen Attractive to Increase Duration

The recent rise in U.S. Treasury yields presents an opportunity to increase duration in U.S. fixed income investments and build a curve-steepening strategy, according to a note from a global chief investment officer. The Federal Reserve is expected to emphasize the need for continued restrictive policies at its upcoming meeting. The market’s reaction to the latest U.S. inflation data is seen as an overreaction, merely delaying the initiation of a rate cutting cycle. The two-year segment of the U.S. curve is considered attractive.

The consensus view is in favor of European fixed income assets, which is seen as having merit. The view does not depend on a dovish turn from the European Central Bank. Normalization of interest rates would be considered positive in light of inflation and growth rates. The market’s outlook is still more pessimistic, creating an opportunity for those with a more optimistic outlook.