Burned Before, Bond Markets Resume Rate-Cutting Trades Worldwide

-- Bond traders are cautiously reloading wagers that burned them just weeks ago as the Federal Reserve and key global peers finally appear set to begin reducing interest rates as soon as June.Previous bets that central banks would be swift to loosen monetary policy in 2024 backfired after authorities maintained their focus on above-target inflation and resilient demand.

Indeed, Reid and his colleagues reckon markets have pivoted towards dovish policy seven times in this cycle and on the last six occasions the outcomes were actually hawkish.For now, investors are feeling a flicker of what unfolded in late-2023. At the time, the Treasury market seemed set for a third straight annual loss, but it rallied into year-end as expectations swept global markets that policymakers would reduce rates early in 2024.

Rates traders are leaning toward June as the start of the Fed easing cycle, after entering the year banking on a March kickoff. For all of 2024, they see a bit more than Fed officials’ median forecast of 75 basis points of reductions. June is also when markets expect the ECB and the BOE to start cutting, with at least several moves priced in from both.

“There’s a small window for the Fed to be cutting maybe 50 basis points before the election, but we think that’s as good as it gets,” said the firm’s deputy head of fixed income. Her portfolio is neutral on the US front end, while bullishly positioned in short-dated bonds in Europe and UK gilts. The revisions for 2025 and 2026 “show that we’re going to have a shallow easing cycle,” said David Rogal, a portfolio manager in the fundamental fixed-income group at BlackRock.

March 26: Philadelphia Fed non-manufacturing activity; durable goods; capital goods; FHFA house price index; S&P CoreLogic; Conference Board consumer confidence; Richmond Fed manufacturing index and business conditions; Dallas Fed services activityMarch 28: GDP ; personal consumption; GDP price index; initial jobless claims; pending home sales; MNI Chicago PMI; U.

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