Once again, the fixed income market is straining investors’ portfolios by accumulating losses during its final weeks in a movement that can only be explained by the tone hawkish that the Fed has shown despite the fact that at last week’s meeting it did cut rates by 25 points. That led the 10-year American bond to once again exceed the 4.5% return required in the secondary, adding more than 2.8% losses to the annual balance.
However, he could have been too pessimistic about inflation considering that the latest data on the GDP deflator, one of the indicators most closely monitored by the Fed, is growing at its slowest rate since May, 0.1% in its monthly underlying, less than what the market expected last Friday.
In theory, an environment of rate cuts like the one the market finds itself in now should favor increases across the fixed income spectrum. “Of the seven cycles of rate cuts that the Fed has undertaken since 1984, three of them have taken place outside the framework of a recession and, in these cases, the S&P 500 has recorded an average return of 27.9% between the first and last cuts, while fixed income has delivered solid returns in both recessionary and non-recessionary cut cycles, significantly outperforming cash equivalent investments in non-recessionary periods,” they explain from Capital Group.
In any case, what is being quoted in the main US sovereign debt reference is nothing other than the expectations of seeing more cuts in the future, and that is that Trump’s policies threaten to make inflation rise again. If this were to happen in a strong economic context, the Fed would be forced to stop its rate cuts, which is what is now partially priced in a market that discounts only two rate cuts of more than 25 points during 2025 compared to the 5 o 6 decreases in the price of money that are currently expected in the eurozone by the ECB.
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