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Consider embracing certain bonds as the U.S. economy shows signs of strength, John Hancock’s co-chief investment strategist said.
Treasury yields on Thursday jumped following July retail sales that outstripped economists expectations, while weekly initial jobless claims continued to decline. With investors snapping up risk assets such as stocks (SP500)(COMP:IND)(DJI), Treasury prices fell, driving up the shorter end of the yield curve (US2Y) to levels not seen in two weeks. Yields move inversely to prices.
“Good news is good news again for growth. For an asset allocator, that’s great news,” Matt Miskin, co-chief investment strategist at John Hancock, told Bloomberg TV in an interview Thursday.
Cooling inflation and recession fears had prompted traders to price in multiple and big interest rate cuts by the Federal Reserve, although odds of a hefty 50bp cut in September have dropped. Miskin said it’s “overly optimistic” to expect the Fed to reduce rates by at least 50bp per meeting through the end of this year.
“We actually look for less cuts in the short term, more cuts into 2025,” he said. “The bond market is going to see some volatility around this. We would still embrace intermediate, higher-quality bonds for 2025, where we think we’re going to get more returns out of it. For now, just get the income,” he said.
“We’re still going to get about two-and-a-half percent in income to the end of the year,” he said.
Miskin foresees the Fed either cutting rates by 25bp in September, November and December, or issuing rate reductions of 25bp in September and December and holding steady in November.
“It’s the beginning of the cutting cycle. That’s going to be bullish for bonds over time. We don’t think that right now the economy is screaming for the rate cuts,” Miskin said.