What the Fed's interest rate cut means for the bond market

Janney Montgomery Scott chief fixed income strategist Guy LeBas joins Market Domination Overtime to discuss how the Federal Reserve's interest rate cut will weigh on the bond market (^TYX, ^TNX, ^FVX). LeBas notes that the size of the Fed's first interest rate cut matters for the bond market, explaining: "We could see a Federal Reserve which comes out with a 25-basis-point rate cut but emphasizes the possibility, maybe even the probability, that over time they could cut at a more accelerated pace... Were that to happen, we'd see... this one rate cut done, perhaps on the hawkish side, but the future would end up pricing each additional FOMC meeting with a roughly fifty-fifty chance of 25 basis points, or 50 basis points, and it would end up being a dovish 25 as opposed to a hawkish 50, in which there's a cut and a more gradual expected path." While many rate easing cycles end in an economic downturn, LeBas is "not convinced" that will be the case this time around. "I think today we start in a circumstance in which we're much further away from neutral interest rates than in any of those periods. So more likely than three, we get four or five. But so long as economic growth holds up, if we get four or five 25-basis-point rate cuts in the next two to three quarters, that's a pretty healthy situation," he tells Yahoo Finance. As the easing cycle kicks off, LeBas sees the yield curve steepening. He adds, "Based on how far the front end of the yield curve, call it the, you know, the two-year portion of the yield curve, has fallen, any more steepening from here realistically is it going to require ten-year yields TNX (^TNX) or the longer portion of the yield curve to rise. And that only really comes alongside a little bit of a reflationary impulse."
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[LewisConstance]

The Fed's talk of interest rate cut leaves me pondering what stocks to buy now and when do I sell? I'm unsure how to properly allocate my money to achieve an optimal portfolio in this present economy, my goal is $3m for retirement.

[donaldwest]

Low interest rates are good for borrowing money and carrying debt. However, it has a negative impact in the fixed income markets. If bank savings and bond funds earn 1%-3% annually vs the general bond market of 5.5% returns, savers and bond investors are then at best are breaking even or more likely losing value each year and are forced to
to take more risk with dividend paying stocks.

Same with pension funds..

Cheap money incentives more spending and greater debt.
35 years agi my first house had a 10% mortgage and it was a great deal and paid it off in a little over 7 years. .

People with a 3% mortgage have no incentive to pre pay a loan and get out of debt.
Yet they continue to spend like intoxicated sailors.

[Marnel-bl]

I am at the beginning of my "investment journey", planning to put 85K into dividend stocks so that I will be making up to 30% per year in dividend returns. Any advice?

[VonKirda]

The game of fin commentators: change the goalposts at at any time and fear instability. Like the arsonists becoming fire fighters

[ThomasWilbert-jm]

Quarter...point in interest rate cut. In my opinion....it will be just that