Bond investors are changing direction

Schroders Plc fund managers have begun closing positions in short-term bonds. Schroders Plc fund managers have begun closing positions where they profit when short-term bonds outperform long-term bonds. These positions have provided investors with gains in recent months, despite expectations that the Fed will continue its hawkish policy causing bonds to sell off. Schroders Fixed Income Associate Director Kellie Wood said they decided to close these positions, which she said were their most profitable investments this year, as of this week and switched to a more horizontal position in U.S. bonds. However, recent statements from Fed officials indicate that further rate hikes may not be needed, while the worst of the selling pressure in bonds may be over. This is pushing investors to hold onto bonds at attractive levels. The yield spread between U.S. 10- and 2-year bonds closed at -28 on Friday. This spread was -100 in mid-July. The Fed will remain restrictive ‘for a while’ At their last interest rate meeting last month, Fed officials agreed that the policy implemented to slow inflation should remain restrictive for a while longer, while indicating that the risks have become more balanced. The minutes of the Federal Open Market Committee meeting released last night said, “Participants generally agreed that with monetary policy in restrictive territory, the risks to the committee’s achievement of its objectives have become more two-sided.” The minutes stated that “all participants” agreed that the committee was in a position to “proceed with caution” and that policy decisions would be data-dependent and would take into account the “balance of risks.” At last month’s meeting, Fed officials kept the interest rate range between 5.25-5.5% and signaled that after raising rates once more this year, rates would remain high for longer than previously anticipated. The rise in long-term bond yields since then has led some policy makers to say they may not raise rates at the meeting in early November. The minutes said a “majority” of Fed officials thought another rate hike was “probably appropriate” to help reduce demand and bring inflation closer to the 2% inflation target over the next two years, while “some” said “no further increases were necessary.”