Bonds Selloff Like Over For Now, says JPMorgan Asset Management

Bonds selloff is likely over for now, accordion to JPMorgan Asset Management.

Seamus Mac Gorain, head of global rates at the $2.5 trillion investment giant, who said markets have now largely priced in expectations for aggressive US interest rate hikes to combat the highest inflation in four decades.

Even if yields inch higher from here, the bulk of painful losses has already been inked, he said.

Treasuries can still “get somewhat higher yields, maybe you get to as high as 3.25%,” London-based Mac Gorain said of the 10-year benchmark, which traded around 2.9% Thursday.

“But I think the truth is that a lot of the near term move has already happened at this point. We’ve already had a pretty big correction.”

The bond head continues to hold a short Treasuries position “on an outright basis,” he added.

For Mac Gorain, a former fixed-income portfolio manager at the Bank of England, the odds of a 2022 US downturn are now close to even as Fed Chairman Jerome Powell stresses the central bank will consider “moving more aggressively” to curb inflation.

“Recession next year is a very serious possibility” as the Fed tries to “thread the needle” on balancing inflation and recessionary risks, he said. “You’ll have seen monetary policy tightening starting to impact growth, you’ll have less support from fiscal policy, it’s hard to see any big fiscal stimulus in the US after mid-term elections.”

Goldman Sachs Group Inc. sees a 30% to 40% chance of a recession in the next 12 to 24 months. Tesla Inc. chief executive Elon Musk said the US is probably in a recession already — one that could last up to 18 months.