The interest rate cut expectations have subsided, but the market still has hope for US Treasuries

The combination of the non-farm payrolls beat and Powell's reiteration that he would not act too quickly prompted traders to sharply reduce bets on interest rate cuts before May, but the market remained hopeful about US Treasuries**.

Overnight, Fed Chair Jerome Powell's interview was aired, reiterating the risks of premature action – "the work is not quite done, and the good data of the past six months may not be somehow a true indicator of where inflation is headed." The remarks, combined with an unexpectedly strong non-farm payrolls in January, hit expectations of a rate cut, and Treasuries slipped in early Asian trading on Monday, with the yield on the benchmark 10-year Treasury note climbing 5 basis points to 407%。

However, expectations that the Fed will start cutting interest rates by the middle of the year remain widespread, setting a floor for the bond market. Whenever yields spike, buyers tend to rush back in, trying to lock in relatively high returns before yields slip.

While the current state of the U.S. economy means that there is no urgency to cut interest rates, policymakers are also aware of the risks of keeping interest rates high for a long time. The current interest rate range is 525% to 55%, which is more than double the neutral growth level. As inflation falls, there is plenty of room for fewer rate cuts.

Therefore, there may still be room for U.S. Treasuries, Priya Misra, portfolio manager at JPMorgan Asset Management, believes that

Uncertainty over the timing of the Fed's actions adds to the attractiveness of the five-year Treasury noteShe believes that the five-year Treasury bond may benefit from a longer period of rate cuts. The later the Fed begins the normalization process, the more lag it will have, and the more things it may need to do.

If the market starts to lower its pricing in the Fed's neutral policy rate, it could pull yields lower. In addition, there is still a risk of a shock to the economy, which will lead to the expectation of a "soft landing" of the economy being dashed, and inflation may also start to fall more violently.