NEW YORK (Reuters) – U.S. bond fund managers are betting that the steep gains in Treasuries over the last month are here to stay.

Yields on the benchmark 10-year Treasury rate have dropped to near 2.10% after rising as high as 2.55% as recently as May 2 as fears of escalating trade wars and slowing global economic growth have spooked equity markets and sent investors to the safety of bonds. Bonds yields fall as security prices rise, leaving investors with capital appreciation gains.

But instead of seeing the recent rally as just a fear trade, fund managers from firms including BlackRock Inc, Wells Fargo Asset Management and Sierra Investment Management say they are still buying Treasuries in anticipation of additional interest rate cuts this year by the Federal Reserve to try to revive inflation amid a slowing economy.

The near $16-trillion sector produced a total return of 2.35% in May, its strongest monthly showing since August 2011, according to an index compiled by Bloomberg and Barclays. Long-dated Treasuries generated a stellar 6.7% return, their juiciest performance since January 2015.

“We haven’t gotten the inflation engine going and I don’t think we will,” said Margie Patel, a senior portfolio manager at Wells Fargo Asset Management. “It’s a horrible outcome for fixed-income investors who have been spoiled for 30 years and now they’re facing a complete yield drought that will probably get worse,” she said, adding that a fall in the yield of the 10-year Treasury to 1.5% over the next year “would not be out of the question.”

The core consumer price index increased at an annual rate of 1.6% in April, well below the Fed’s target rate of 2%. Fed Chairman Jerome Powell said on Tuesday that the central bank is watching the fallout from the ongoing trade war between the U.S. and China and will react as “appropriate.”

Bob Miller, a portfolio manager and head of U.S. multi-sector fixed income at BlackRock, said he expects the Fed to cut interest rates by 50 basis points by the end of this year because of slowing global economic growth.

“The challenge is that the rest of the world is doing worse than expectations from six months ago, with Europe being particularly soggy over the last year. With the rest of the world proving disappointing and U.S. growth already decelerating, I think you will see the Fed respond,” he said.

As a result, Miller said he still sees value in the benchmark 10-year Treasury, as well as intermediate notes that mature in three to seven years. If the Fed does cut rates, that could lead to opportunities in higher-quality emerging market debt in countries with good structural fundamentals, he said.

A prolonged rally in bonds could mean the end of the bull market in equities, which had sent the benchmark S&P 500 index up as much as 16% for the year-to-date in April and continued to push Treasury yields lower.

“The growth backdrop is deteriorating. The U.S. economy was expected to slow, but the risk is that it will slow more than previously expected,” and eat into corporate earnings, Miller said.

After its strong start for the year, the S&P 500 is down nearly 4% since the start of May as the United States and China remain at an impasse over trade and tariffs. Further declines in the U.S. equity market could bring more waves of buyers into the bond market, further pushing yields lower, said Terri Spath, chief investment officer at Sierra Investment Management.

“There’s a perception with U.S. stocks that they can go quickly from flawless to hopeless, and since May 1 it’s been more hopeless for stocks,” she said.

Spath said she is continuing to put assets into long-term Treasury bonds and has zero of her portfolio in cash, after having as much as 80 percent in cash during the steep selloffs in both the equity and fixed-income markets in November.

“I’m not hiding under my desk yet because of a fear of a recession,” she said, “but I think there’s room for yields to go even lower.”

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