Recently, expectations are rising that the Federal Reserve may cut interest rates by 50 basis points at its September meeting, which will prompt a strategic adjustment in the allocation of US dollar assets.

Takeru Ohsaki, Head of Rates Strategy for Nomura Asia (excluding Japan), believes that currently, from the perspective of interest rate swaps, the market's prediction for the Federal Reserve's interest rate cut is about 100 basis points by the end of the year; despite the significant reduction, it still has a relative interest rate advantage, and the market will continue to focus on investment opportunities in US Treasuries.

There is still room for allocation in US Treasuries.

As the Federal Reserve's interest rate cut is imminent, the market's attention to the expected magnitude of the cut is increasing.

Ohsaki stated that the expectation for the Federal Reserve to cut interest rates in September has essentially been confirmed, with the only uncertainty being whether it will be by 25 or 50 basis points.

As the interest rate cut cycle approaches, the market generally believes that it is highly likely that the Federal Reserve will cut rates by 50 basis points in September. There are reports that on September 13th, former President of the Federal Reserve Bank of New York, William Dudley, stated at a forum in Singapore that there are strong reasons for the Federal Reserve to cut interest rates by 50 basis points at its September meeting.

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Ohsaki further pointed out that currently, from the perspective of interest rate swaps, the market's prediction for the Federal Reserve's interest rate cut is about 100 basis points by the end of the year, followed by another 90 basis points in the first half of next year, bringing the federal funds rate down to approximately 3.25% to 3.5%.

The market's uncertainty regarding the magnitude and timing of the interest rate cut has intensified the volatility in the US stock, US Treasury, and gold markets. In particular, the yield on US Treasury bonds has fluctuated up and down for several consecutive trading days since September 6th, and as of September 11th, the yield on US Treasuries has once again risen overall.

According to data disclosed by the China Bond Financial Valuation Center, on September 11th, the US Treasury yield curve for the 3M term rose by 4 basis points to 5.10%, the 3-year term yield rose by 3 basis points to 3.45%, and the 10-year term yield remained stable at 3.65%.

However, as the market fell across the board, investors' appetite for buying on dips increased, and the US Treasury market quickly rebounded again.In Liang Shulun's view, the magnitude of the interest rate cut by the United States may be substantial. Currently, the market expects that the Federal Reserve will lower interest rates by 200 basis points within a year, and by the end of next year, the 10-year U.S. Treasury yield may drop to 3% or 3.25%. However, compared to historical levels, U.S. Treasury yields remain relatively high, and they still perform well after the rate cut. Compared to the U.S. stock market and other types of assets, U.S. Treasury assets with a higher degree of certainty will continue to be high-quality assets in portfolio allocation.

The direction of policy over the next two months is crucial.

Compared to the U.S. market, there is limited room for interest rate cuts in the Chinese market.

Liang Shulun stated that the current interest rate level in the Chinese market is very low, essentially making it one of the countries with the lowest interest rates in the world, with the 30-year government bond yield already falling to around 2.35%. The key to future interest rate trends will depend on the policy direction over the next one or two months. "If policies are introduced in areas such as finance, consumption, or real estate, interest rates may rebound; if there are still no substantial policies by December, interest rates may head towards new lows."

In Liang Shulun's opinion, since August, the central bank has continued to conduct short-term purchases and long-term sales in the bond market and has intervened in the "speculative" behavior of small and medium-sized financial institutions, not truly aiming to push interest rates higher, but rather to manage the risks of rapid interest rate declines and stabilize the bond market.

Looking at market performance, after the adjustments in August, entering September, the government bond yields have once again steadily decreased. According to the China Bond Yield Curve and Index Daily Review Report, on September 11th, the China Bond government bond yield curve for the 3-month term fell by 4 basis points to 1.40%; the 2-year term fell by 4 basis points to 1.39%; and the 10-year term fell by 1 basis point to 2.11%.

"From the economic situation, there is currently no basis to support an upward trend in interest rates, but whether interest rates will continue to decline in the future depends on the policy changes over the next one or two months," Liang Shulun said.