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Pimco’s Seidner Takes Contrarian View With Fed Cut Expectations
(Bloomberg) -- The Federal Reserve may cut interest rates more aggressively than markets expect, making shorter-maturity US Treasuries attractive, according to Pacific Investment Management Co’s Marc Seidner.
Seidner sees the Fed delivering two-quarter point reductions in 2025, potentially in the second half, with a chance of even more decreases after that. In contrast, swap pricing shows that traders expect fewer than two quarter-point cuts this year due to fears that a new round of US tariffs will stoke inflation.
“Our expectation is the Fed would look through tariffs and not have it affect policy directly,” Seidner, chief investment officer of non-traditional strategies, said in a Jan. 24 interview in Singapore. “We disagree with market pricing in terms of, or market assumption that it is a foregone conclusion that the Trump presidency is inflationary in that one point.”
Trump’s tariff threats have emerged as the biggest wildcard for Treasuries as uncertainty about the timing and quantum of the imposts makes it hard for traders to predict market moves. Benchmark 10-year yields climbed to as high as 4.81% in mid-January as investors braced for more levies but fell back to 4.53% after the US President appeared to soften his stance during his first week in office.
Seidner, a 38-year investment veteran, helps manage Pimco’s Dynamic Bond Fund which beat 91% of its peers over the past five years. He likes two-to-five-year Treasuries — securities that are more sensitive to changes in borrowing costs — but he’s wary of longer-term paper due to the ballooning US deficit.
Trump “ran a campaign that was very critical of the inflationary policies of the Biden and Harris administration,” he said. “Therefore, just thinking logically, it would seem inconsistent that you would be critical of inflation and then immediately implement inflationary policies.”
Traders are divided on the outlook for Fed policy, with the debate also evident within Pimco, which oversees the world’s largest actively managed bond fund. Chief investment officer Dan Ivascyn said in a recent Financial Times interview that the Fed could keep rates on hold for the “foreseeable future” pending further clarity on Trump’s policies.
“We have a wide range of views” at Pimco, Seidner said.
The US central bank is widely expected to keep interest rates on hold at the end of its two-day meeting on Wednesday, marking the first pause in the rate-cutting cycle it kicked off in September.
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“The long-end of the US Treasury curve will continue to struggle as fiscal largesse is becoming a more confronting issue.”
Mary Nicola, Markets Live strategist
Gilt Trade
Seidner also favors five-year gilts on expectations the Bank of England will ease monetary policy more aggressively than its US counterpart.
“We think they’re cheap,” he said. “The longer term suggestion should be that interest rates in the UK should be quite a bit lower than that in the United States — not equal to.”