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Where 3 Bond Titans Think Rates Are Headed

A roundup of the latest outlooks from PIMCO, PGIM, and JP Morgan.

Alfonzo Bruno: The Federal Reserve cut its benchmark interest rate by 25 basis points at its most recent meeting in July. This was the first rate cut since 2008. Stubborn inflation, a looming trade war, and softness in economic data globally were some of the reasons behind the Fed’s decision. A lot remains uncertain, but Chairman Powell may have left the door open for more rate cuts. Amidst the Fed's decisions and trade headlines, the market reaction was notable, leading to a stronger U.S. dollar, a broad sell-off in riskier assets such as U.S. equities, and a 10-year yield that fell back below 2% for the first time since 2016.

PIMCO believes there is still more room to run in interest rates as another rate cut is probable this year. They believe the downside risks to the economy, via trade wars, tariffs, or global growth deceleration, may continue to loom over the short term. As a result, they think interest-rate exposure may be a good hedge against both credit and equity risk. They also note that downside momentum in U.S. rates may continue to build as global investors continue to search for yield in an environment where $14 trillion worth of bonds offer negative yields.