By Hari Kishan

BENGALURU (Reuters) – Global sovereign yields will have only drifted modestly higher by this time next year, but most bond strategists polled by Reuters appear convinced the only way is up and the gap between short and long-term maturities is set to widen.

According to most, the latest quarterly poll results show a remarkable rise in Treasury yields due to a shift from emergency pandemic policy and growing inflation concerns.

These forecasters’ reluctances to predict anything beyond modest increases in yields could also reflect the many years of forecasting such a return back to normal, only for it to be overshadowed by the relentless demand by central banks for government bonds.

The sell-off of U.S. Treasuries this past week, which pushed yields to new highs not seen since June mid-June, suggests that the government bond market has reached an inflection point. Investors will be reorienting their outlook towards the Fed and the other central banks.

The growth rate is well above the trend. Inflation is not expected to rise in the near future. This kind of background makes it natural that interest rates in developed markets generally will rise,” Arjun Vij (portfolio manager for J.P. Morgan Asset Management’s $1.15billion Global Bond Fund), said.

The Fed and the markets agree on when the Fed will raise interest rates. Vij stated that it’s not the rate of increases where markets can close the gap.

Survey results from Sept. 24-29 revealed that the optimistic outlook for the economy is evident with 26 out of 50 economists, 52%, believing that a wider spread in U.S. Treasury spreads on the next year would be more probable.

Spreads were predicted to remain stable by 11 analysts, but the other 13 saw a widening of spreads.

(Reuters poll graphic on the major sovereign bond yields outlook: https://fingfx.thomsonreuters.com/gfx/polling/myvmnowwgpr/MicrosoftTeams-image%20(21).png)

In the poll, over 60 bond strategists predicted the benchmark yield on the U.S. 10-year note would rise to 1.9% in 12 months, about 40 basis points higher than where it is now.

The forecasted rise in benchmark yields from Japan, Britain, and Germany was between 10-20 basis point.

(Reuters poll graphic on the U.S. Treasury yields outlook: https://fingfx.thomsonreuters.com/gfx/polling/xmvjokxxkpr/MicrosoftTeams-image%20(12).png)

But there was no clear consensus among analysts on what would drive major sovereign yields in the short run.

A separate question asked 49 people whether incoming economic information would have the greatest impact. Twenty-four of them chose forward guidance from central bankers, with 23 choosing COVID-19 developments.

According to Rick Rieder (NYSE:), chief investment officer for global fixed income, BlackRock (NYSE) said that tapering Fed asset purchases… will likely have little market impact. He was referring to the expectations of a reduction of $10 billion in U.S. Treasury buys and a $5 billion decrease in mortgage-backed securities. These are compared to its $120 billion monthly purchases.

This is due to the Fed’s ability to telegraph when tapering will begin. But, more important it is because asset purchases reductions seem trivial in light of the size of fixed income markets and the overwhelming demand for income.

Prerana Behat, Tushar Goenka and Steve Orlofsky reported and polled. Editing was done by Ross Finley.