The pivot is on pause, and the bond market is adjusting its playbook.
With the Federal Reserve widely expected to hold rates steady at 3.50%-3.75% this Wednesday, fixed income investors are bracing for an extended pause. The resilient US economy and anticipated fiscal stimulus have nudged allocators out of cash and back into risk—but selectively.
⏳ THE STRATEGY: EXTENDING DURATION Traders are moving out the curve (5-to-30-year Treasuries) rather than down the credit spectrum.
- The Logic: With the yield curve steepening, longer-dated debt is finally offering attractive carry over money markets.
- The Positioning: J.P. Morgan’s client survey shows the most net long positions since mid-December.
- The Quote: “Extending out gives you that steepness… so higher yields and steeper curves allow you to get paid,” notes Vishal Khanduja (Morgan Stanley IM).
🚫 THE CONSTRAINT: CREDIT IS EXPENSIVE While appetite for risk is returning, aggressive credit plays are off the table.
- Tight Spreads: US Investment Grade spreads are at 73 bps—near levels last seen in the late 1990s.
- The Warning: With valuations this rich, managers like John Flahive (Insight Investment) advise clients to exit cash but avoid being “overly aggressive” in distressed or junk debt (Triple Cs).
🎲 THE WILDCARDS:
- Succession: All eyes are on May. BlackRock’s Rick Rieder is now the odds-on favorite to replace Jerome Powell, with betting markets giving him a 49% chance.
- Fiscal Drag: While the Trump administration pushes for tax cuts and credit card rate caps, George Catrambone (DWS) warns that the US deficit leaves “limited fiscal leeway” for these plans to fully materialize without sparking inflation or supply concerns.
💡 ANALYST TAKEAWAY: The “Cash is King” era is ending, but the “Credit is King” era hasn’t started. We are in the “Duration Sweet Spot.” With the market pricing in less than two rate cuts for 2026 (~44 bps), the consensus is that the easy easing is over. The smart money is locking in long-term yields now, using Treasuries as a hedge against geopolitical friction while avoiding the valuation trap in corporate credit.
👇 Fixed Income PMs: With IG spreads at 1990s lows, is there any value left in high-grade credit, or is it strictly a government bond game now?