Analysis-US bond bulls lean into latest selloff despite inflation scare

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A sharp selloff in U.S. bonds prompts some investors to consider allocating more funds to lock in higher yields ahead of interest rate cuts by the Federal Reserve. Treasury yields have soared in recent weeks after solid economic data and rebounding price pressures pushed out expectations of when the Fed would start cutting rates. However, many investors see lower bond prices as an opportunity to increase duration and buy bonds that benefit most from an interest rate move. Some investors are optimistic about the duration trade and believe rates will not go up much more. Others are less optimistic on inflation falling and expect lower yields in the next 12 months. Traders of futures tied to the Fed's policy rates expect less than two interest rate cuts in 2024. The peak in yields last year preceded a rally in bonds, but this time around, confidence that price pressures are easing is lower.

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