Interest Rate Outlook under resumption of FOMC rate cuts | Amundi HK Retail

With rate cuts back on the table, what lies ahead for US Short Term Bonds?

FOMC September 2025
Interest Rate Outlook - US Short Term Bond_English

What is the Outlook for Interest Rates going forward?

 

When the Fed announced their decision to reduce the policy rate on September 17th, the rest of the yield curve saw interest rates move higher, which happened in the prior FOMC rate cut cycle as well. For the long end of the yield curve, demand is likely to be restrained by the triple threat of tariffs, deficits, and concerns over FOMC independence. As for the front end of the yield curve, domestic growth has slowed, and a reasonably high number of rate cuts are already priced in. With inflation still persistently above their target, it will be difficult for the FOMC to meet market expectations for additional rate cuts unless the labor market shows further signs of weakness.

What are the implications on Strategy and Portfolio Repositioning?

 

Income generated by the strategy will likely decline as short-term rates fall, but the excess return potential versus the benchmark is unaffected by these rate movements. In mid-2024, when the market priced in a “higher for longer” interest rate narrative, duration was added to lock in these rate levels, moving the strategy to its highest interest rate duration level in many years. Equally, caution was maintained to avoid increasing duration to a level that could cause excessive volatility. More recently, we believe that investors may be overestimating the number of upcoming Federal Reserve rate cuts, so the strategy’s duration has been allowed to gradually decrease. 

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