BlackRock strategists have stopped promoting short-term US bonds and believe they should be sold, as they say expectations for a US interest rate cut are too high, Bloomberg reports.
Wei Li, chief investment strategist at BlackRock, thinks that speculation that the Fed has delayed easing for too long and that this will force the pace of rate cuts to accelerate is wrong. She is confident that the Federal Reserve will cut interest rates by a "standard" 25 basis points at its meeting on Wednesday.
"We think the markets have gone too far in determining the depth of the rate cut cycle. The cycle of cuts is starting, but it may not be as deep as the market thinks," Wei Li said.
The yield on two-year U.S. Treasuries, which are highly sensitive to the outlook for interest rate changes, fell to near two-year lows on Monday.
The swaps market expects a rate cut of around 118 basis points by the end of the year. Wei Li acknowledged that the risk of a recession in the US has increased, but she believes the economy will slow down rather than experience a recession.
"We are talking about the creation of 164,000 jobs on average every month over the last six months. It's still a pretty high pace," she concluded.