SINGAPORE (May 12): US bond yields are set to rise as the market is underestimating how many times the Federal Reserve will raise interest rates in the next 12 months, according to Fullerton Fund Management, the asset manager owned by Temasek Holdings.

The US central bank will probably raise its benchmark two more times in 2017, said Ong Guat Cheng, senior vice president for fixed income at Singapore-based Fullerton. Futures traders are predicting just one more increase by year-end. Ten-year Treasury yields may climb to as high as 2.60% by the end of December, she said.

“Markets are pricing the longer-term rate hike trajectory too benignly, despite the Fed’s guidance and firm economic data,” Ong said in an interview this week. “With the Trump administration’s proposed policy of tax cuts and increased infrastructure spending, the pace of US growth could accelerate and potentially encourage the Fed to raise interest rates at a faster pace.”

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