Directly pointing out market misjudgment! JP Morgan warns: Overheated rate cut expectations will push up US bond yields next year.

JPMorgan strategist said that due to the market's overly aggressive expectations of a rate cut by the Fed, US Treasuries are unlikely to replicate this year's strong performance in 2026. The bank predicts that the yield on the 10-year US Treasury will decline by about 50 basis points to around 4.08% in 2025 before climbing to 4.35% by the end of next year. This forecast makes JPMorgan one of the more pessimistic market outlookers. Economists and strategists surveyed predict that the 10-year bond yield will reach 4.06% by the end of 2026. This year, with the Fed having already cut rates twice (expected to cut for the third time next week) to support the cooling labor market, US Treasury yields have exceeded 6%, moving towards the best annual performance since 2020. Interest rate swap markets show that traders are currently betting on nearly four 25 basis point rate cuts over the next year, including one on December 10th. But JPMorgan is more optimistic about the US economy and expects only two rate cuts - one next week and one in January next year. Jay Barry, head of JPMorgan's global interest rate strategy, said in a media briefing, "If the Fed fails to meet the market's expectations for rate cuts, bond yields will experience some normalization." He also added that the US economy "faces pressure but will not collapse." Barry pointed out that, according to JPMorgan's fair value model, the current 10-year yield is at least 15 basis points undervalued. He also said that investors' positioning may amplify potential losses. JPMorgan's survey showed that its bond clients reduced their net long positions by the largest margin in 15 years last week. Barry said that next year, the return on US Treasuries may be closer to their fixed rate level, "rather than achieving a truly strong total return."