Investors are at a critical crossroads. There are subtle signs of economic softening in the US 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 reposition 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 three-month US Treasury Bill yielding 4.23 per cent and the 10-year US Treasury bond yielding 4.22 per cent, 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 per cent probability of a rate cut at the September 17 FOMC meeting, a 91 per cent jump from just 47 per cent on July 31. Adding a dose of credibility to the market’s assessment, are early signs of cooling in recent US 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 per cent in June after an 11.6 per cent decline in May.

• Median new home prices are down 4.9 per cent month-over-month and 2.9 per cent year-over-year.

• Elevated mortgage rates and high home prices are keeping existing home sales sluggish. Existing home sales dropped 2.7 per cent 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 annualised 3 per cent in the second quarter of 2025, but economic growth averaged 1.25 per cent 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 per cent. While an improvement from the sluggish 0.5 per cent 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 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 six-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

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This article was written with assistance from Artificial Intelligence.

Marian Ross-Ammar.