Investors should prepare for lower US interest rates, UBS says
Dow modestly higher; S&P 500 falls, Nasdaq slides ~1.5%
Energy leads S&P 500 sector gainers; Tech down most
Euro STOXX 600 index up ~0.45%
Dollar edges red; gold up slightly; crude dips; bitcoin off >1%
U.S. 10-Year Treasury yield edges down to ~4.16%
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INVESTORS SHOULD PREPARE FOR LOWER US INTEREST RATES, UBS SAYS
Investors should begin positioning for lower U.S. Treasury rates as market expectations for a September rate cut by the Federal Reserve have continued to push yields lower, according to UBS analysts led by Solita Marcelli.
Over the past week, the yield on the two-year note US2YT=RR fell around 12 basis points, while that of the 10-year note US10YT=RR dropped 4 basis points as investors foresee an imminent rate cut supported by data showing a slowdown in inflation, the analysts said.
The gap between yields on two- and 10-year Treasury notes US2US10=RR, seen as an indicator of economic expectation, was at a negative 21.0 basis points on Tuesday.
UBS now forecasts that the yield on the 10-year Treasury note will to fall to 3.5% by mid-2025, as the Federal Reserve shifts to monetary policy easing, despite "term-premium" volatility amid the uncertainty from the upcoming U.S. election and the fragile fiscal position of the federal government with growing deficits.
The Federal Reserve is widely anticipated on Wednesday, at the end of its two-day policy meeting, to keep its benchmark overnight rate in the 5.25%-5.50% range for an eighth straight meeting.
"In our view, the US central bank may use its meeting this week to set the stage for this shift, following recent public remarks by policy makers, including Fed Chair Jerome Powell, suggesting that rate cuts are on the horizon," the analysts said.
(Chibuike Oguh)
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