Invesco: The Federal Reserve is about to cut interest rates, and US Treasuries have more investment value than European bonds
Invesco Senior Portfolio Manager Alessio de Longis stated that as the likelihood of the Federal Reserve cutting interest rates increases, U.S. Treasury bonds are more attractive for investment compared to European bonds. He pointed out that the safe-haven status of U.S. Treasury bonds is being restored, and the decline in U.S. employment data is prompting the Federal Reserve to adopt a more aggressive easing policy. The market expects the Federal Reserve to cut interest rates twice before the end of the year, and investors are turning to safer fixed-income assets. Analysts from JP Morgan and Schroders also believe that U.S. Treasury bonds are more attractive in terms of valuation
According to Invesco senior portfolio manager Alessio de Longis, with the increasing possibility of interest rate cuts by the Federal Reserve and the restoration of the traditional safe-haven status of U.S. Treasuries, U.S. government bonds are more attractive for investment than European bonds.
After Trump implemented the "Liberation Day" tariff policy in April, the performance of U.S. Treasuries initially lagged behind that of European bonds, as this move shook confidence in the safety of U.S. government bonds. However, de Longis stated that the overweight position he has held since the beginning of the year has been "strongly validated," as the decline in U.S. employment data prompted the Federal Reserve to adopt a more aggressive easing policy.
In an interview, he said, "Foreign central banks are prioritizing the implementation of easing policies, and we believe the Federal Reserve still has room to lower interest rates. The reason fixed income assets are performing well should be due to more signs of economic slowdown for the remainder of this year."
The key test will come on Friday when Federal Reserve Chairman Jerome Powell delivers a highly anticipated speech at the global central bank meeting in Jackson Hole. Market interest rate expectations indicate that the Federal Reserve will cut rates twice by 25 basis points by the end of this year, and de Longis expects Powell to mention the possibility of a rate cut in September.
De Longis stated, "The U.S. labor market report is increasingly becoming the 'most watched economic data'." He also noted that investors are "trying to shift more investments towards safer fixed income assets."
Since the shock in April, U.S. Treasuries have regained favor, becoming the preferred safe-haven asset for global investors during market turmoil. JPMorgan Asset Management stated that the "glory days" of European bonds are over, and they believe U.S. government bonds are more attractive in terms of valuation. Schroders analysts pointed out this week that the European Central Bank's cautious stance on interest rate cuts "further indicates a reduction in European bonds."
On Thursday, the yield on the U.S. 10-year Treasury bond fluctuated slightly, maintaining a level of 4.31%, about 30 basis points lower than the level reached in May. The yield spread between U.S. Treasuries and German government bonds has narrowed from nearly 200 basis points in June to about 155 basis points. On April 3, this spread was 137 basis points
