Federal Reserve Chair Jerome Powell signalled the central bank is preparing to cut rates as early as September, telling the Senate Banking Committee on Tuesday that the path of disinflation is now "broad and sustained" across goods, shelter, and core services.
The remarks, the most dovish from a sitting Fed chair since 2024, triggered an immediate repricing in front-end rates futures, with markets now assigning a 78% probability to a 25-basis-point cut at the September FOMC. The two-year Treasury yield fell 14 basis points to 3.62%, its sharpest single-day drop since November.
Where the buy side is positioned
Multi-strategy hedge funds have been progressively unwinding short-duration exposure since April's softer CPI print. Citadel, Millennium and Point72 are all reported to have moved from short to neutral duration over the past six weeks, according to prime broker positioning data reviewed by Buysiders.
On the long-only side, BlackRock's flagship core bond fund extended duration by 0.6 years in April, its largest single-month duration add since 2020.
What changes next
- Front-end credit spreads are likely to compress further as carry trades re-engage.
- EM hard-currency debt funds are reporting their strongest inflows of the year.
- Private credit GPs are watching the timeline closely: a faster cutting path compresses the spread their funds capture over public credit.
"This is the cleanest setup for fixed income we've seen since 2019," said Bob Michele, CIO of Global Fixed Income at JPMorgan Asset Management, on a call with clients Tuesday afternoon.
"The market has been begging for this confirmation. Powell delivered it."
The September FOMC is now the most-watched meeting since Jackson Hole 2022. Sell-side strategists at Goldman, Morgan Stanley and Citi all revised their year-end forecasts within four hours of the testimony, now expecting between 50 and 75 basis points of cumulative cuts by year-end.