Fidelity Says Treasuries Have Gone Too Far, Favors Underweight

(Bloomberg) -- The slide in yields on U.S. Treasuries has gone far enough, and investors should consider going underweight the asset class, according to Fidelity International.

The sharp decline in yields since the Federal Reserve last week quashed expectations of interest-rate increases this year has led to the inversion of a closely monitored part of the U.S. yield curve, seen as a forward indicator of a potential recession.

“Activity is likely to accelerate in Q2 amid continued tightening in the labor markets and some improvement in growth and inflation,” Andrea Iannelli, investment director at Fidelity International, wrote in a note Tuesday. “In such an environment, the Fed would have to do yet another pivot and resume the hiking cycle either this year or in 2020.”

Iannelli concluded that “given how much pessimism is already baked into prices, we favor an underweight stance to U.S. rates, where we see limited room for U.S. yields to fall further from here.”

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