According to Bloomberg, Wall Street strategists generally support the policy direction of the Federal Reserve and believe that the yield of US bonds will decline in 2025, especially the yield of two-year treasury bond bonds, which is highly related to the interest rate policy of the Federal Reserve. This prediction indicates that the market has shown some confidence in the Federal Reserve's monetary policy path, while also suggesting adaptive adjustments to the future economic environment.

The yield of two-year treasury bond may decline significantly

The yield of two-year US treasury bond bonds is regarded as one of the most sensitive indicators to the policy of the Federal Reserve. In 2024, the Federal Reserve has cut interest rates several times in a row, gradually lowering them from the high point at the beginning of the year, but the overall pace is relatively cautious. As the market gradually assimilates the policy stance of the Federal Reserve, strategists predict that the yield of two-year treasury bond bonds in 2025 will decline significantly. This is mainly attributed to the following points:

1. The policy stance of the Federal Reserve

The Federal Reserve stated in its latest statement that although monetary policy adjustments will continue, their pace will be slower and more cautious. This tone indicates that the Federal Reserve is not in a hurry to adopt larger interest rate cuts, but hopes to achieve a balance between inflation control and economic growth through gradual adjustments.

2. Economic growth slows down

The US economy has shown strong resilience in 2024, but with the easing of inflationary pressures and the weakening of economic stimulus effects, it is expected that the economic growth rate will slow down in 2025. According to the forecast of the Organization for Economic Cooperation and Development (OECD), the GDP growth rate of the United States in 2025 will decrease from 2.8% in 2024 to 2.4%. The slowdown in economic growth has created conditions for the decline in bond yields.

3. Gradual easing of inflationary pressure

The Federal Reserve has adjusted its inflation forecast for 2025 from 2.5% in 2024 to 2.3%. As inflation gradually approaches the target level of 2%, the market's demand for high interest rates weakens, further driving down bond yields.

Changes in Long Short Term Yield Curves

In 2024, the yield curve of the US bond market was once inverted, which is usually regarded as the precursor of economic recession. However, as the Federal Reserve enters a cycle of interest rate cuts, strategists expect the yield curve to gradually normalize by 2025.

1. Steady decline in long-term returns

Despite the slow pace of interest rate cuts by the Federal Reserve, long-term bond yields are expected to steadily decline, thanks to the market's moderate expectations for future economic growth.

2. Rapid adjustment of short-term yield

The short-term treasury bond bond yield, especially the two-year yield, may reflect the policy adjustment of the Federal Reserve more quickly. This will gradually make the yield curve steeper, indicating an improvement in market confidence in the economic outlook.

Consistency between Wall Street's views and the Federal Reserve's policies

Bloomberg's survey shows that most Wall Street strategists support the Federal Reserve's policy path, believing that its gradual interest rate cuts are the best choice in the current economic environment. This support is mainly based on the following points:

1. Balancing Full Employment and Inflation Targets

The Federal Reserve has always emphasized that the goal of its monetary policy is to "promote maximum employment and price stability". Against the backdrop of strong labor market resilience, the Federal Reserve is not in a hurry to significantly cut interest rates, but hopes to ensure sustained economic growth through cautious adjustments.

2. Positive response to market signals

The reaction of the bond market is basically consistent with the policy path of the Federal Reserve, indicating that the market has strong confidence in the Fed. Meanwhile, this consistency also helps to reduce market volatility.

3. The complex background of the global economy

Against the backdrop of a complex and volatile global economic environment, the Federal Reserve's policy adjustments also need to consider the impact of other major economies. For example, the European Central Bank's accelerated easing policy and the Bank of Japan's possible policy adjustments will have an indirect impact on the Federal Reserve's policy path.

Potential risks and uncertainties

Although Wall Street is optimistic about the decline in bond yields in 2025, analysts believe that potential risks such as:

1. The possibility of a rebound in inflation

If inflationary pressures rise again, the Federal Reserve may be forced to adjust its policy path, which could have an impact on the bond market.

2. The uncertainty of the global economy

Geopolitical risks, changes in trade policies and monetary policy adjustments in other economies may all have an unexpected impact on the US bond market.

3. Unexpected changes in the labor market

If the US labor market deteriorates rapidly, it may lead to a significant adjustment in market expectations for economic growth.

summary

In general, Wall Street has a positive attitude towards the decline of US bond yield in 2025, especially the expectation of the decline of two-year treasury bond bond yield. This trend reflects the market's confidence in the Federal Reserve's policy path and also indicates the potential of the bond market in the coming year.