Like the Federal Reserve, Yun expects improvements in the bond market when investors are sure that inflation is completely under control.
“What the bond market is looking for is assurance that the inflation is fully contained,” he said. “In September of last year, it potentially could be contained, but it was not a certainty. So, the next Fed rate cut, which I think is the second half of this year, the reasoning for the rate cut will be that inflation is fully under control, and that will bring the bond yield down.
“So once there is more data evidence that inflation is clearly getting under control, and therefore the Fed cuts interest rates, the bond yields will immediately follow the path of the Fed policy.”
With the new turmoil in the Middle East, there have been questions about what that might do to treasury bonds. Yun believes investors will look for the safety of the US market in times of turmoil, which could lower bond yields as well.
“And related to other uncertain geopolitical matters, at least related to the bond market, if anything, it is going to lead more money into the US Treasury bonds,” Yun said. “And American consumers, they’re so far removed from what’s happening on the other side of the globe that they’re just looking at, they have a job. Mortgage rates are high, but if the mortgage rate goes down, and if they qualify for a mortgage, I think they will start searching for a home.
