If there are no surprises, the U.S. Treasury bond market is expected to achieve a monthly rise for the third consecutive month, which would be the longest uptrend in three years.
Market pricing indicates that investors are prepared for a Federal Reserve rate cut in September, with the current question being whether there will be more rate cuts. BlackRock expects three rate cuts this year.
Due to the recent rise in U.S. Treasury bond prices, the Bloomberg U.S. Treasury Bond Index, which tracks U.S. Treasury bonds, has seen a cumulative increase of about 1.3% since the beginning of July, with a return rate increase of about 3.9% since the end of April. It will continue to rise for the third consecutive month in July, marking the longest period of monthly increases since July 2021.
On Monday, the prices of U.S. Treasury bonds generally continued to rise, with the benchmark 10-year U.S. Treasury bond yield hitting a new low in over a week, opening the prelude to this week's super central bank week. From Wednesday noon Beijing time to Thursday evening, the central banks of Japan, the United States, and the United Kingdom will announce their monetary policy decisions in succession, and the global market will experience the most exciting 32 hours.
The well-known financial journalist Nick Timiraos wrote over the weekend that this week's Federal Reserve monetary policy meeting is unlikely to cut rates, but as inflation improves and the labor market shows signs of cooling, and the Federal Reserve's risk considerations change, from worrying about the risk of rising inflation to worrying about rising unemployment, the Federal Reserve will send a signal to cut rates this week, preparing for a rate cut in September.
Wells Fargo macro strategist Erik Nelson commented on Monday that if you look at the market pricing, you will find that we are ready for a rate cut in September, and there will definitely be two rate cuts. He believes that for the market, the bigger question is whether there will be six or more rate cuts.
Notably, earlier on Monday some traders are even betting on a 50 basis point rate cut by the Federal Reserve in September. Analysis suggests that this reflects the market's concern about a recession. The steepening of the U.S. Treasury yield curve and significant cooling of the labor market support this radical market expectation, but at the same time, the economic data released shows strong vitality in the U.S. economy.
Kate Moore, head of thematic strategy at BlackRock, said on Monday that it is difficult for Federal Reserve officials to make decisions now, and they want to be cautious, especially before the U.S. election. BlackRock expects the Fed to cut rates in September, and there will likely be three rate cuts this year, and then another rate cut in the first half of next year, because BlackRock expects to face more downward pressure on inflation later.
David Mericle, the chief U.S. economist at Goldman Sachs Research, said he expects the Federal Reserve's post-meeting statement this week to include some modified wording, implying that the central bank's decision-makers feel more comfortable with the idea of a rate cut due to favorable data.
Last week, former Federal Reserve third-in-command and former New York Federal Reserve Chairman Dudley, who had called for a rate hike by the Federal Reserve in 2019, wrote that he has changed his view and is now calling for the Federal Reserve to cut rates this month.
Dudley believes that part of the reason Federal Reserve officials suggest that they will not cut rates this month is that they have misunderstood the labor market, and the deterioration of this market will produce a self-reinforcing economic feedback loop. Historical experience shows that when the labor market cools to this extent, it tends to decline more rapidly, and delaying a rate cut will increase the risk of a recession.
Some analysts are also cautious about rate cuts. They believe the fundamentals of the U.S. economy are good and there is no need to rush to cut rates. J.P. Morgan said in a report last Friday that it expects Federal Reserve Chairman Powell to avoid holding any specific meeting when cutting rates for the first time. They also believe that there is no sufficient reason to support a rate cut by the Federal Reserve.