J.P. Morgan Asset Management bullish on Treasuries as Fed done with hikes -September 14, 2023 at 02:15 pm EDT

NEW YORK, Sept 14 (Reuters) – U.S. government bonds are
expected to rally over the coming months as the Federal Reserve
has likely reached a peak in interest rates, executives at J.P.
Morgan Asset Management, the asset management arm of the U.S.
largest bank, said on Thursday.

The firm, which manages $2.5 trillions in assets, expects
benchmark 10-year U.S Treasury yields to decline and hit about
3.75% by the end of the year.

“We are long 10-year duration … by the end of the year we
would expect the 10-year to be at roughly maybe 3.80%-3.75%,”
Jed Laskowitz, global head of asset management solutions at J.P.
Morgan Asset Management said in a webinar.

U.S. Treasuries have had a rough year so far as a
surprisingly resilient economy has pushed the Fed to raise
interest rates higher to control inflation.

The yield of 10-year Treasury bonds – a building block of
the global financial system as it influences interest rates on
products such as loans and mortgage rates – has increased by
about 45 basis points year to date and stood at about 4.29% on
Thursday.

Yields, which move inversely to prices, tend to decrease
during economic downturns as demand for safe government bonds
increases.

While a recession next year remains possible, a rally in
long-term U.S. Treasuries would occur also in case of a milder
economic slowdown, said Kay Herr, head of research for the
global fixed income, currency and commodities group at J.P.
Morgan Asset Management.

“Our view is that the Fed is done … the cumulative and
lagged effects (of interest rate hikes) are adequate and the Fed
doesn’t need to go any further,” she said.

The Fed is largely expected to keep rates on hold at its
next rate-setting meeting next week, but Fed funds traders on
Thursday were pricing for a 35% probability of another hike in
November.

Over the last seven Fed hiking cycles, 10-year yields have
declined about 89 basis points on average between the last Fed
hike and the first interest rate cut, said Herr.

“So that is a pretty bullish outlook for bonds from here,”
she said.
(Reporting by Davide Barbuscia; editing by David Evans)