Bond investors brace for US slowdown, shed risk as Fed seen on hold

Gertrude Chavez-Dreyfuss

Tue, Mar 18, 2025, 3:33 AM 4 min read

By Gertrude Chavez-Dreyfuss

NEW YORK (Reuters) -Bond investors are bracing for a U.S. economical downturn, arsenic they pare backmost risky exposures, portion galore are extending duration successful their fixed-income portfolios, taking successful to relationship a Federal Reserve that is successful nary unreserved to resume cutting involvement rates.

In the run-up to this week's two-day Federal Open Market Committee meeting, investors person been extending duration. That entails buying longer-dated assets successful anticipation of a further diminution successful yields and suggests that the enslaved marketplace is positioning for a deeper-than-anticipated rate-cutting cycle. Investors person been lengthening duration for the past period astatine least, marketplace participants said.

J.P. Morgan's latest Treasury Client Survey showed enslaved investors having the largest net-long presumption connected Treasuries since the autumn of 2010. The utmost overbought concern could beryllium a contrarian indicator, however, suggesting a imaginable method bounce for enslaved yields successful the adjacent term.

The enslaved market's agelong positioning is apt owed successful portion to fears of recession, analysts said, arsenic the Trump medication continued to pummel the United States' trading partners with assertive import tariffs that acceptable the signifier for a planetary commercialized war.

"We person been heavier connected duration and lighter connected recognition comparative to our erstwhile positioning and for a period oregon two, it was hard for radical to ideate wherefore we mightiness beryllium positioned similar that," said Christian Hoffmann, caput of fixed income and portfolio manager astatine Thornburg Investment Management successful Santa Fe, New Mexico.

"The system contiguous ... inactive seems OK. But it's truly concerns astir the aboriginal and radical wondering however these policies -- that alteration not conscionable regular but intra-day -- mightiness interaction prices and geopolitical trade."

Futures traders successful U.S. national funds, which measurement the outgo of unsecured overnight loans betwixt banks, expect the Fed to clasp involvement rates dependable successful the 4.25%-4.50% scope astatine the extremity of its gathering connected Wednesday.

They person besides priced successful astir 62 ground points (bps) of easing successful 2025, oregon astir 2 complaint reductions of 25 bps each, LSEG calculations showed. The adjacent complaint chopped is expected to hap successful June, unchanged from what traders priced successful aft the January argumentation meeting.

Fed Chair Jerome Powell, astatine his property briefing connected Wednesday, volition astir apt awesome that the committee volition stay diligent successful cutting rates arsenic the system does not look to beryllium falling disconnected a cliff. The U.S. cardinal slope tin clasp disconnected indefinitely, analysts said, arsenic it seeks much clarity astir the Trump administration's economical policies.