Many experts expect the Federal Reserve to continue its accommodative monetary policy even after its second round of quantitative easing (QE2) finishes June 30. Simon Maughan, co-head of European equities at MF Global, agrees.
The $600 billion of Treasury purchases by the Fed doesn’t signal an end, he says.
“The bond market is going in one direction, which is up, telling you quite clearly the direction of economic travel is downward,” Maughan tells CNBC. “QE3 is coming. The bond markets are all smarter than us, and that’s exactly what the bond markets are telling me.”
The 10-year Treasury yield has dropped to an eight-month low of 2.97 percent from 3.57 percent March 3.
Some traders and investors expected the bond market to be falling already, Maughan says.
“They have just been mowed down by the quant funds which are all about leverage, all about momentum and are betting on bond prices going up.”
He was referring to quantitative investment funds, which trade based on mathematical models.
And now get ready for more bond buying from the Fed that should last at least through the summer, Maughan says.
Others are bullish on bonds too. “We are in a ‘look out below’ market,” Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott, tells Bloomberg. “No matter what, we seem to grind lower in yield. There is room for a shot to 2.9 percent” on the 10-year Treasury yield.
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