JPMorgan Asset Management predicts an imminent US recession, with the Federal Reserve likely to lower interest rates in the third quarter due to slowing growth. Seamus Mac Gorain, head of global rates in London, agrees and believes a recession is necessary to reduce high inflation. Despite expectations of a policy pivot by the Fed in September, the central bank has consistently rejected the notion, potentially causing difficulties for those banking on rate cuts to combat inflation.
JPMorgan favors Treasuries as a hedge against a slowdown, expecting 10-year yields to drop below 2.5% in a deep downturn. Currently, the 10-year US yield is around 3.53%, having reached 4.09% earlier this year. Other markets, like long-term forward rates in Europe, are also becoming attractive. Mac Gorain advises waiting for clear evidence of inflation turnaround before entering these markets, possibly in the later summer.
Why it matters
According to Mac Gorain, it is probable that the issue will be resolved following a period of market instability. Similar market fluctuations occurred in 2011, which prompted progress in the political realm. The precise timing of this resolution is uncertain; it could occur in the coming weeks or perhaps a bit later during the summer. As a result, we have moved away from investing in short-term US Treasury bills. Instead, we can attain a higher yield by opting for Japanese bills over Treasury bills.