LIVE MARKETS-Two more rate cuts, but yields to be rangebound - JPMorgan

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TWO MORE RATE CUTS, BUT YIELDS TO BE RANGEBOUND - JPMORGAN

U.S. Treasury yields are likely to be rangebound in the next few months even with the Federal Reserve expected to continue cutting interest rates, before rising moderately next year when the Fed is on hold, according to fixed income analysts at JPMorgan.

The bank expects labor market growth to be “uncomfortably slow” in the next three-to-six months, but there are several factors that should boost the economy later next year. These include gaining more distance from the tariff shocks of “Liberation Day,” personal tax benefits from the One Big Beautiful Bill and accommodative monetary policy.

The Fed is likely to cut rates by another 50 basis points, with cuts in January and April. But benchmark 10-year Treasury yields US10YT=RR will likely rise to 4.25% in the second quarter and 4.35% by the fourth quarter, from 4.01% on Tuesday, JPMorgan said.

The bank anticipates GDP growth of 1.8% in 2026. Downside risks to this view include a recession, while upside risks may be faster than expected productivity benefits from AI. The largest risk would be if the Supreme Court allows the President to replace Fed board members at will, resulting in higher inflation.

Meanwhile, Nicholas Colas, co-founder of DataTrek Research, notes that the seven- to 10-year part of the Treasury yield curve has been a standout performer in the fixed income space this year, returning 8.7% year-to-date.

This beat returns from all other Treasury maturities along with investment-grade and high-yield corporate debt, U.S. government agency debt and municipal bonds.

(Karen Brettell)

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