Payden & Rygel: Bond Prices Reflect Expectations for Further Fed Tightening

According to Jin10, Eric Sanders, a director and portfolio manager at Payden & Rygel, said the question for investors is no longer just whether the Federal Reserve will raise rates, but how much further monetary tightening bond prices have priced in. Markets continue to price in the possibility of further Fed tightening, broadly in line with Payden & Rygel’s expectations. Sanders said the market has priced in slightly more tightening than the firm expects. The risk-reward appeal of the short end of the U.S. Treasury yield curve is increasing. Sanders said 2- to 3-year Treasury yields are significantly higher than cash and 3-month Treasury bill yields, providing a substantial buffer against further rate increases. He added that even if yields continue to rise, total bond returns would not necessarily turn negative.