There is value in the bond market at the end of the curve, says Wellington's Brij Khurana

Fed Policy & Interest Rates - The market anticipates a 25 basis point rate cut, but there may be three Fed voters dissenting, potentially advocating for a 50 basis point cut [1] - The market will closely monitor the Fed's summary of economic projections, particularly the dot plot, to gauge the expected policy rate for the current and subsequent years [2] - The market is pricing in nearly 150 basis points of cuts for the next year, expecting the Fed to go below 3%, which may be difficult for the Fed to indicate [3] - The market expects the Fed to cut rates drastically, anticipating a new Fed chair next year to aggressively save the cycle and prolong the expansion [11][12] Bond Market Dynamics - The president's influence on the Fed is priced into the term premium, which is the value in extending out the bond curve [4] - Forward rates indicate that the market expects 10-year Treasury yields to be close to 550 basis points (55%) in 10 years, the highest in over 20 years [5] - The market may be pricing in too much term premium, as 550 basis points (55%) growth for the next 20 years is unlikely [6] - The market is already pricing in the Fed getting back to its 2% inflation target [13] Economic Conditions & Inflation - The economy is showing a two-speed dynamic, with high-income consumers continuing to spend, making the inflation story tricky [8] - Core inflation, excluding shelter, grew at 270 basis points (27%) last month, the highest level in the last two years, indicating high-income consumers are doing well [9] - Small businesses are suffering due to high interest rates, leading to firing and a higher unemployment rate [9] - Tariff policies and immigration could lead to stagflationary conditions, with lower growth and higher inflation [14]