Vanguard forecasts a soft landing and anticipates that yields may rally before retracing

Vanguard argued on Thursday that the U.S. economy is headed for a soft landing, as a result of which Treasury yields may be in a position to rally a bit further before retracing lower once again.

“With Treasury yields back up near 4%, we see more room for rates to rally than to sell-off further over the medium term. If recession fears re-emerge on weaker data, it’s possible for rates to plunge below 3%,” the exchange-traded fund provider stated in an investor note.

The Pennsylvania-headquartered asset manager went on to add: “Our central scenario remains that the U.S. economy will slow to below-trend growth but avoid recession.”

Vanguard also made it clear that it believes the yield curve will revert toward its typical upward-sloping shape with time.

As of Thursday, the shorter end U.S. 2 Year Treasury yield (US2Y) trades at 4.18%, marking its highest level since the beginning of August. At the same time, the longer end U.S. 10 Year Treasury yield (US10Y) hovers near 4.30%, a level not observed since early July.

Furthermore, see how other yields trade across the entire yield curve here.

As Treasury yields rise, they exert downward pressure on bond prices since the two move in opposite directions. Here are some prominent Treasury and fixed-income ETFs currently drawing attention as a result:

Treasury ETFs: (NASDAQ:TLT), (NYSEARCA:TLH), (IEF), (IEI), (SHY), (SGOV), (SCHO), and (BIL).

Bond ETFs: (AGG), (BND), (VCIT), (MUB), (MBB), (JNK), (LQD), (HYG), and (TIP).