The global bond market can't count on a robust rally just yet

Bets on the Fed’s rate upcycle peak may prove premature yet again

- LIZ CAPO MCCORMICK & MICHAEL MACKENZIE

Bets on a bond-market rally aren’t in the clear just yet. On 26 July, Federal Reserve Chairperson Jerome Powell appeared to give traders the positive signal they’ve been waiting for—that the US central bank may finally be wrapping up it’s steepest interest-rate hikes since the early 1980s. Then the next day, European Central Bank President Christine Lagarde said she had an “open mind" on whether to tighten policy further, underscoring the shifting sentiment underway at the world’s central banks.

But other forces are tamping down the market optimism.

Wall Street securities dealers expect a glut of Treasury sales to start coming soon as the government steps up its borrowing. The Fed could keep hiking rates—or hold them higher for longer—if inflation proves stickier than expected. And the Bank of Japan (BoJ) has taken a step back from its ultra-loose monetary policy by allowing bond yields to push higher, thereby giving Japanese buyers more incentive to invest at home and pull money back from the US.