Wall Street and the Federal Reserve haven’t exactly been in lockstep in recent years.
Investors mostly failed to forecast how high interest rates would go after the pandemic and then thought they would be cut much faster than they were.
But those paid to predict the bond market may be taking their cues from the central bank into 2025.
Strategists at major banks envisage short-term US Treasury yields dropping over the year, despite the risk President-elect Donald Trump’s trade and tax policies play havoc with such predictions by reigniting inflation.
Market-watchers are readying for a drop in the two-year Treasury note’s yield, which is more sensitive to the Fed’s interest-rate policy. They see a decline of at least half a percentage point from the current level 12 months from now.
“While investors are likely to be myopically focused on the pace and magnitude of rate cuts next year, investors should take a step back and recognize that the Fed is still in cutting mode in 2025,” a JPMorgan Asset Management team led by David Kelly said in the firm’s annual outlook.
