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Treasury Yields Expected to Hold Steady for Next Two Quarters and Then Rise Gradually, According to Standish

BNY Mellon Investment Manager Sees Temporary Mid-Year Slowdown

Treasury yields are expected to hold steady through the second and third quarters before rising toward year-end, according to the April Bond Market Observations from Standish, the Boston-based fixed income specialist for BNY Mellon.

Standish also remains bullish on the U.S. dollar as the currency is expected to benefit from political uncertainty in Europe and the Bank of Japan's aggressive policy stance. Standish also notes in the report that the easing policies of major central banks have been the primary reason for the resilience of the global economy to shocks, and have helped to drive the rally in global capital markets so far in 2013.

"In the past, shocks such as the Cypriot banking crisis and the lack of a clear winner in the Italian parliamentary elections would have sent capital markets reeling," said Thomas Higgins, Standish's chief economist. "Now, the flood of liquidity from global central banks has dampened investor reactions to these types of issues."

Standish still sees threats to the global economic recovery including the fiscal drag in the United States. As a result, Standish expects the Federal Reserve to stay the course with its asset purchase program until economic activity picks up toward year end, according to the report.

Standish said that even when Treasury yields begin to rise, the increase is likely to be gradual similar to the one that accompanied the Fed tightening cycle in 2004 rather than the sudden increase which occurred in 1994. The Fed's transparent communication with the market should alert investors well in advance of any change in policy, moderating the rise in yields, according to Standish