Cautious easing pricing in bonds

Bond investors are cautiously increasing their positions, especially in short-term bonds, in anticipation of dovish central banks. Bond investors are cautiously increasing their positions in bonds based on the expectation that the Fed and other central banks will start cutting interest rates in the middle of the year. Fund managers of institutions including Pimco and BlackRock, as well as bond king Bill Gross, think that two-year bonds could rally due to the yield decline that the rate cut could cause. Pimco Portfolio Manager Michael Cudzil, predicting that the ECB, Fed and Bank of England will start cutting interest rates in the middle of this year, said, “However, the similarities end there. The pace of interest rate cuts and the final interest rate to be reached will vary. This creates a great opportunity for fixed-income securities.” However, actors trading in the bond market have positioned themselves according to a similar dovish transformation since the end of last year, and bonds have suffered losses this year due to the successive high inflation data and hawkish messages in the US. Deutsche Bank Research Director Jim Reid stated that markets are focused on the dovish story, but emphasized that expectations about interest rates in 2024 are constantly changing. In the latest case, bond investors are pricing in a bit more than the 75 basis point rate cut expected from the Fed to start in June.