<p>A significant global bond market correction is likely in the next three months as central bankers eye the exit door from pandemic emergency policy, according to a Reuters poll of strategists who also forecast modestly higher yields in a year.</p>.<p>Financial markets were caught off guard by the Federal Reserve's surprisingly hawkish tone at its meeting last week, sparking a sell-off in equities and a safe-haven rush into Treasuries.</p>.<p>While Fed Chair Jerome Powell played down rising price pressures on Tuesday, just a day later two Fed officials said the recent bout of higher inflation could last longer than anticipated.</p>.<p>The MOVE index - a bond market volatility gauge - hit a two-month high on Monday, underscoring those mixed signals and uncertainty about the near-term.</p>.<p>In the June 17-24 poll, over 60% of fixed-income strategists, or 25 of 41, who answered an additional question said a significant sell-off in global bond markets was likely over the next three months.</p>.<p>"The message from Powell is: We will look through it (inflation). We're not going to jump to conclusions and that creates some calm. But you just need a couple of big surprises (in data) and things are again open to correction," said Elwin de Groot, head of macro strategy at Rabobank.</p>.<p>Still, beyond the near-term, yields on major sovereign bonds were expected to have risen relatively modestly in a year, according to the poll of 80 fixed-income strategists.</p>.<p>The US 10-year Treasury yield was forecast to rise about 50 basis points to 2.0% by June 2022, from around 1.5% on Thursday.</p>.<p>Those views line up with a separate poll of foreign exchange strategists which predicted the dollar to weaken over the 12-month horizon, suggesting an outlook across asset classes that monetary policy would remain accommodative.</p>.<p>Asked when the Fed would announce a taper plan for its $120 billion per month asset purchases programme, roughly three-quarters of respondents, or 33 of 44, predicted it by September.</p>.<p>About the same proportion, 31 of 40, said the central bank won't start cutting monthly purchases until early next year.</p>.<p>The Fed's heavy presence in bond markets as a buyer is expected to prevent a runaway rise in yields, which the central bank will not want to happen.</p>.<p>When asked how high would U.S. 10-year Treasury yields rise to over the next three months, the median of 30 analysts was 1.75%, with forecasts ranging between 1.5% and 2.0%.</p>.<p>But the pull and push between reflation trades on the back of a rapidly improving economic landscape and safety bets on central banks' dovish rhetoric was expected to limit extreme yield moves.</p>.<p>"We're going to be in this range bound environment for quite some time," said Leslie Falconio, senior fixed-income strategist at UBS Global Wealth Management.</p>.<p>"Even though people considered the Fed a bit hawkish, given the fact they moved the dot plot to two rate hikes in 2023, the market has already priced that in. We saw a move up in Treasury yields but nothing that was material."</p>.<p>While the debate on price pressures being transitory or not continues, over two-thirds of analysts, or 27 of 40 who answered a separate question, said inflation expectations currently priced-in by bond markets were just about right.</p>.<p>"Inflation is not all transitory. It is going to be a mix of sustainable and transitory," said Guneet Dhingra, head of U.S. interest rates strategy at Morgan Stanley.</p>.<p>"Inflation will be higher than the last cycle. But not so high that it runs amok and becomes a difficult thing for the Fed to control. Optimism is fine, hysteria is not."</p>
<p>A significant global bond market correction is likely in the next three months as central bankers eye the exit door from pandemic emergency policy, according to a Reuters poll of strategists who also forecast modestly higher yields in a year.</p>.<p>Financial markets were caught off guard by the Federal Reserve's surprisingly hawkish tone at its meeting last week, sparking a sell-off in equities and a safe-haven rush into Treasuries.</p>.<p>While Fed Chair Jerome Powell played down rising price pressures on Tuesday, just a day later two Fed officials said the recent bout of higher inflation could last longer than anticipated.</p>.<p>The MOVE index - a bond market volatility gauge - hit a two-month high on Monday, underscoring those mixed signals and uncertainty about the near-term.</p>.<p>In the June 17-24 poll, over 60% of fixed-income strategists, or 25 of 41, who answered an additional question said a significant sell-off in global bond markets was likely over the next three months.</p>.<p>"The message from Powell is: We will look through it (inflation). We're not going to jump to conclusions and that creates some calm. But you just need a couple of big surprises (in data) and things are again open to correction," said Elwin de Groot, head of macro strategy at Rabobank.</p>.<p>Still, beyond the near-term, yields on major sovereign bonds were expected to have risen relatively modestly in a year, according to the poll of 80 fixed-income strategists.</p>.<p>The US 10-year Treasury yield was forecast to rise about 50 basis points to 2.0% by June 2022, from around 1.5% on Thursday.</p>.<p>Those views line up with a separate poll of foreign exchange strategists which predicted the dollar to weaken over the 12-month horizon, suggesting an outlook across asset classes that monetary policy would remain accommodative.</p>.<p>Asked when the Fed would announce a taper plan for its $120 billion per month asset purchases programme, roughly three-quarters of respondents, or 33 of 44, predicted it by September.</p>.<p>About the same proportion, 31 of 40, said the central bank won't start cutting monthly purchases until early next year.</p>.<p>The Fed's heavy presence in bond markets as a buyer is expected to prevent a runaway rise in yields, which the central bank will not want to happen.</p>.<p>When asked how high would U.S. 10-year Treasury yields rise to over the next three months, the median of 30 analysts was 1.75%, with forecasts ranging between 1.5% and 2.0%.</p>.<p>But the pull and push between reflation trades on the back of a rapidly improving economic landscape and safety bets on central banks' dovish rhetoric was expected to limit extreme yield moves.</p>.<p>"We're going to be in this range bound environment for quite some time," said Leslie Falconio, senior fixed-income strategist at UBS Global Wealth Management.</p>.<p>"Even though people considered the Fed a bit hawkish, given the fact they moved the dot plot to two rate hikes in 2023, the market has already priced that in. We saw a move up in Treasury yields but nothing that was material."</p>.<p>While the debate on price pressures being transitory or not continues, over two-thirds of analysts, or 27 of 40 who answered a separate question, said inflation expectations currently priced-in by bond markets were just about right.</p>.<p>"Inflation is not all transitory. It is going to be a mix of sustainable and transitory," said Guneet Dhingra, head of U.S. interest rates strategy at Morgan Stanley.</p>.<p>"Inflation will be higher than the last cycle. But not so high that it runs amok and becomes a difficult thing for the Fed to control. Optimism is fine, hysteria is not."</p>