The benchmark 10-year Treasury note yield recently dropped to a one-year low as investors sought a haven from Europe’s financial crisis.
The move confounded many experts, who thought the explosion of U.S. government debt would send Treasury yields higher.
Now many strategists are cutting their forecasts for those yields.
The 10-year yield touched a low of 3.06 percent May 25 before recently rebounding to 3.28 percent.
"A lot of people didn't see the latest rally coming," Zach Pandl, an economist at Nomura Securities International, told The Wall Street Journal.
In mid-April, Nomura became one of the first primary dealers — banks that trade directly with the Federal Reserve — to cut its year-end prediction for the 10-year Treasury yield, to 3.75 percent from 4 percent.
To be sure, that forecast still entails a hefty increase from current levels.
Pandl says economic recovery will cause mild inflation.
"The inflation outlook is really the biggest point of uncertainty. If you're going to get lower yields, it means you're going to have some deflation scenario for the economy as a whole."
But one primary dealer, HSBC Securities, sees the 10-year yield falling even further, to 3 percent at year-end.
Others are bullish on Treasuries, too.
“Treasuries are dependent on what is going on in Europe,” Kornelius Purps, a fixed-income strategist at UniCredit bank told Bloomberg.
“Double-dip recession fears will be reinforced over the coming weeks, underpinning support for Treasuries.”
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