US 10-year treasury yield could fall to 1.75% due to trade meltdown: Report

Treasury 10-year yields may decline to 1.75 per cent by year-end if the US-China trade war goes full throttle, according to Western Asset Management LLC.

Yields may keep falling even though they have already tumbled to about 2.10 per cent from a seven-year high of 3.26% set in October, according to Mark Lindbloom, a portfolio manager at the firm that oversees $436 billion. The trigger: a cocktail of slowing inflation, cooling global growth and a worsening in US-China trade tensions.

“There’s nothing special about 2 per cent for 10-year notes,” Lindbloom, who co-manages a fund that beat 97 per cent of its peers in the past year, said in an interview in Singapore. “If we were to go down that path, we would be quick to add duration.”

Federal Reserve policy makers will meet Tuesday and Wednesday to set rates, with many economics and bond traders ratcheting up bets they will ease this year to boost the economy. Futures traders have priced in about a quarter point of easing next month, and more by year-end.

Strategists at Charles Schwab Corp. and UBS Group AG say traders may be wrong to factor in only negative trade outcomes that would spur an imminent reduction in borrowing costs. Lindbloom agrees the market may have “gone ahead of itself” in pricing such aggressive expectations of Fed cuts.

“We think we’re going to get at least one cut this year,” he said. “But we doubt we will see it as early as this week or even in July. We think later in the year is more probable.”