Inflation data and the Federal Reserve's shift have led Wall Street to anticipate next year's US bond yield earlier than expected.
On one hand, inflation has been cooling down in the past two months, fueling expectations of an interest rate cut as early as March next year. As a result, the yield on 10-year US Treasury bonds has dropped by nearly 1 percentage point since the end of October.
As of the time of writing, the forward market expects the Federal Reserve to cut interest rates 6 times next year, compared to only 3 times predicted at the end of October.
On the other hand, Powell's sudden &#34;shift&#34; last Wednesday has further exacerbated the situation, with the yield on 10-year US Treasury bonds falling below 4% and briefly dipping below 3.9% this week.
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Previously, banks such as Barclays, Deutsche Bank, and Standard Chartered had predicted that the US bond yield would not reach this level or higher until December next year.
Luca Paolini, Chief Strategist at Pictet Asset Management, said that this target seemed &#34;quite aggressive&#34; when it was initially set, but now &#34;many people's expectations have come true.&#34;
Steven Major, Global Head of Fixed Income Research at HSBC, said:
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&#34;Central banks around the world have largely succeeded in combating inflation and do not need to maintain high interest rates before 2024.&#34;
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Currently, 4% is the &#34;target level&#34; for the end of 2024 given by most banks.
Paolini said that there is no evidence that the labor market is slowing significantly, so there is limited downside for yields:
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&#34;The key still lies in whether inflation can cool down further. Although the consensus is optimistic, I don't think there is a definitive answer yet.&#34;
&#34;This (FOMC) meeting has made everyone relax their vigilance, which is not a good sign.&#34;
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Francis Yared, Global Head of Rates Research at Deutsche Bank, also believes that the rally in stocks and bonds may be &#34;a bit too aggressive&#34; after Powell's &#34;shift.&#34;
According to media statistics:
Bank of America's forecast released in November shows that the yield on 10-year US Treasury bonds will drop to 4.25% by the end of 2024.
Deutsche Bank maintains its previous forecast of 4.05% for the end of 2024.
Goldman Sachs' latest report in December lowered its forecast for the end of 2024 yield from 4.55% to 4%.
In November, a Bloomberg survey of more than 50 analysts showed that the median forecast expects the yield on 10-year US Treasury bonds to drop to 4% by the end of 2024.

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