Investors are at a critical crossroads. There are subtle signs of economic softening in the U.S. and a significant increase in the market’s pricing of a September 2025 Fed rate cut. This is a brief but pivotal moment to start to re-position portfolios for the shift in environment. A key question that each investor must answer is: when to buy longer dated fixed income assets? With the 3-month US Treasury Bill yielding 4.23% and the 10-year US Treasury bond yielding 4.22%, investors do not have much CURRENT incentive to buy longer dated fixed income assets right now. But at what point does this dynamic shift? How and when do investors prepare for this shift BEFORE it takes place.
As of August 5, 2025, Fed Funds futures markets are pricing in a 90% probability of a rate cut at the September 17 FOMC meeting, a 91% jump from just 47% on July 31. Adding a dose of credibility to the market’s assessment, are early signs of cooling in recent U.S. housing data. According to Bloomberg Intelligence:
- Inventories of new single-family homes are at their highest since 2007. New home sales rose just 0.6% in June after an 11.6% decline in May.
- Median NEW home prices are down 4.9% month-over-month and 2.9% year-over-year.
- Elevated mortgage rates and high home prices are keeping existing home sales sluggish. Existing home sales dropped 2.7% in June—well below expectations—while residential investment — which declined in three of the past four quarters, is on track to drop again in the second quarter of 2025
- Slower growth year on year: Inflation-adjusted gross domestic product increased an annualized 3% in the second quarter of 2025, but economic growth averaged 1.25% in the first half, a percentage point cooler than the pace for 2024. Consumer spending — which accounts for two-thirds of GDP — advanced 1.4%. While an improvement from the sluggish 0.5% gain at the start of the year, it marked the tamest growth in consecutive quarters since the pandemic. Source: Bloomberg News.
With yields on short- and long-term UST bonds are virtually identical, the temptation is to stay short. But that comes at a cost. If investors wait for the Fed to cut, short-term yields will fall, and long-duration bonds will rally—meaning you’ll have to buy in at higher prices and lower yields. Investors would benefit from locking in 6-12 month rates now, while retaining optionality to extend duration later when spreads become more attractive due to potential economic softness or tariff-induced volatility.
Key Takeaways:
- Act now to secure the longest tenor of short-term yields while they remain elevated.
- Expect price appreciation in longer-dated bonds if the Fed cuts, but be cautious of spread widening.
- Use this period of rate transition to rebalance your fixed income portfolio with flexibility in mind.
This is a tactical window—miss it, and you may miss the best liquidity yields of the cycle.
Marian Ross-Ammar is vice-president, trading & investment at Sterling Asset Management. Sterling provides financial advice and instruments in U.S. dollars and other hard currencies to the corporate, individual and institutional investor. Visit our website at www.sterling.com.jm. Feedback: If you wish to have Sterling address your investment questions in upcoming articles, e-mail us at: info@sterlingasset.net.jm. This article was written with assistance from Artificial Intelligence.