Treasury bond markets (^TYX, ^TNX, ^FVX) experienced a sell-off following the Federal Reserve’s forecast of only two rate cuts in 2025, shifting market expectations. Morning Brief welcomes Bank of America Securities head of US rates strategy, Mark Cabana, and Allspring Global Investments senior portfolio manager and head of plus fixed-income team, Janet Rilling, to analyze these market movements and discuss bond investment opportunities. Rilling characterizes the Fed’s latest rate adjustment as a "hawkish cut," citing robust economic growth and stubborn inflation. While she projects one to two rate cuts in 2025, she emphasizes that the market and the Fed will remain "data dependent." Cabana points to rate markets signaling "quite strong" economic growth heading into 2025. "Calls for a faster US economic moderation were unwarranted earlier this year. That’s why the rates market has priced out so many cuts from the Fed," he explains. While markets have priced in approximately two cuts, he notes there’s "low conviction" in this outlook. Cabana predicts a 10-year yield of 4.25% by the end of 2025, expecting bond yields to decrease amid uncertainty surrounding new economic and fiscal policies. Despite this, Rilling sees opportunity in the current environment, noting that "it’s an attractive time for fixed-income investing" given historically higher yields. However, she advocates for conservative positioning, recommending "a more measured allocation, tilting your portfolio more up in quality to double B’s and shorter duration."
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