(Bloomberg) — JPMorgan Asset Management says US Treasuries have more potential for gains than European government bonds because traders are underpricing the extent to which the Federal Reserve will reduce interest rates compared with the European Central Bank.
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President Donald Trump’s tariffs are more likely to hurt growth than spur inflation, said Myles Bradshaw, the firm’s head of global aggregate strategies on Bloomberg TV. He expects the US central bank will eventually need to cut rates more aggressively, having kept policy on hold for longer.
“US rates are priced to be above 3% — above their neutral rate — over the next few years and that’s where I think there’s tremendous opportunity,” Bradshaw said.
Some global investors, including Pacific Investment Management Co., are starting to see US government bonds as attractive again, after a selloff spurred by concerns over Trump’s tariff policies sent yields soaring. Treasuries rallied across the curve on Thursday, with shorter-dated bond yields dropping as much as four basis points.
In Europe “there is some upside but it’s not nearly as significant as it is in the US,” Bradshaw said.
Money markets are currently favoring the ECB to deliver three more quarter-point cuts this year, taking the deposit rate to 1.5%. For the Fed, traders anticipate at least three reductions to 3.75%, with a fourth also in the cards.
Markets got a reprieve in recent days, after Trump indicated he’s willing to negotiate a trade deal with China and toned down his rhetoric around Fed Chair Jerome Powell. Long-end Treasury yields slumped on Wednesday and a five-year auction received strong demand.
“We are looking at less bad news, less uncertainty coming in the near-term,” he added. “The fundamental driver is really going to be about growth and inflation. That’s really what is going to determine what happens next.”
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