Morgan Stanley: The Federal Reserve's interest rate cuts bring "huge opportunities," making U.S. Treasuries more attractive than European bonds
JPMorgan Chase believes that the Federal Reserve's interest rate cuts present a significant opportunity for U.S. Treasuries, as their upside potential is greater than that of European bonds. The company's strategy chief Myles Bradshaw pointed out that the market has underestimated the extent of the Federal Reserve's rate cuts, and larger cuts are expected. Recently, market expectations for Federal Reserve rate cuts have warmed, leading to a decline in U.S. Treasury yields, attracting the attention of global investors
According to the Zhitong Finance APP, JPMorgan Asset Management stated that U.S. Treasury bonds have greater upside potential than European bonds, as traders underestimate the extent to which the Federal Reserve will cut interest rates compared to the European Central Bank. Myles Bradshaw, the company's global chief strategist, noted that Trump's tariffs are more likely to harm economic growth rather than stimulate inflation. He expects that after maintaining policy stability for a longer period, the Federal Reserve will ultimately need to cut rates more significantly. Bradshaw said, "U.S. interest rates are priced to be above 3% for the next few years, above the neutral rate, and I think this is a huge opportunity."
Some global investors, including Pacific Investment Management Company (PIMCO), have begun to see the appeal of U.S. government bonds again, following a sell-off triggered by concerns over Trump's tariff policies, which caused yields to soar. On Thursday, after the market digested comments from Federal Reserve officials, expectations for rate cuts increased; U.S. Treasury bonds rose across the board, with short-term bond yields falling by as much as 4 basis points.
Federal Reserve Governor Waller stated on Thursday that he would support rate cuts if tariffs lead to job losses. Cleveland Fed President Mester mentioned in an interview that if there is clear evidence of economic trends, officials may take action as early as June.
Bradshaw indicated that European bonds "have some upside potential, but far less than the U.S." The money market currently expects the European Central Bank to cut rates three more times this year, bringing the deposit rate down to 1.5%. For the Federal Reserve, traders expect at least three rate cuts to 3.75%, with a fourth cut also possible.
In recent days, the market has eased after Trump expressed his willingness to negotiate a trade agreement with China and softened his remarks about Federal Reserve Chairman Powell. On Wednesday, U.S. long-term Treasury yields plummeted, and the auction of five-year U.S. Treasury bonds saw strong demand. He added, "We expect that bad news and uncertainty will decrease in the near term. The fundamental drivers will be economic growth and inflation. This will determine what happens next."
