Switzerland-based Julius Baer reported that the U.S. Federal Reserve’s (Fed) shift toward a more data-driven approach to monetary policy and its tighter focus on the 2% inflation target could increase volatility in the bond market.
Julius Baer analyst Dario Messi believes short-term US Treasury bonds, in particular, could become more sensitive to economic data. According to Messi, markets may now react more strongly not only to Fed meetings but also to upcoming macroeconomic data releases.
While markets are pricing in an interest rate hike of approximately 38 basis points by year-end, Julius Baer expects the Fed to keep rates steady throughout 2026. The firm also predicts that the European Central Bank may raise rates once more.
Julius Baer’s analysis also noted that the U.S. labor market may not be as strong as recent data suggests. Consequently, it was noted that upcoming U.S. economic data could trigger sharp price movements, particularly in short-term Treasury yields.
The report suggested that the upside risk for long-term Treasury yields is more limited. According to Julius Baer, the U.S. 10-year Treasury yield could decline slightly in the second half of 2026, falling to a range of 4.30% to 4.40%.
Meanwhile, buying activity continued in the European bond market. Germany’s 2-year bond yield fell by 5 basis points to 2.59%.
