In a couple of previous columns we argued the attractiveness of being invested in long durations. At the time, of course, we did not expect such a dramatic jump for the 10-year Treasury bond at 5% levels, which was clearly a major setback for those who had already entered at around 4.5% levels. Well, we know that in investing something key - but difficult to practice - is the ability to apnea. Those who were able to hold their breath now are the ones who are enjoying the context that suggests a base in the 3.90% zone.

Now, if we look at what was the beginning of the year, we are practically where we started, or even still with losses. What is certain is that the tone of the FED finally changed, and in its last meeting it gave lights to definitely see a glimmer at the end of the tunnel. It already reported 3 cuts of 25bps by the end of 2024 and, therefore, it reads that the hiking cycle is practically over. Mind you, the market is betting on 5 25bps cuts according to the latest swap data in the market, so traders are not short of hope.

For now, it is hard to think that the market alone will continue with rate rallies without a more committed FED on the way to easing interest rates. Stronger signals are needed going forward to bring back the momentum of the latter part of the year, (but beware, this is in line with an even more aggressive rally), which does not detract from the attractive accrual, which remains a 10-year anchor at a 4% rate with no credit risk.

Adolfo Erpel

Fixed Income Trader