What do Fed rate cuts mean for the bond market?

As speculation builds that the Federal Reserve might resume rate cuts, bond investors especially should be aware of the ripple effects.

 

MARKET SENTIMENT APPEARS TO BE shifting from “Will they?” to “When will they?” on the question of the Federal Reserve’s next move on interest rates. Heading into the Fed’s September meeting, expectations have grown around its board voting for the first drop in rates since December 2024. What could drive this possible change of direction? Concerns about the potential inflationary effects of tariffs may be lessening, and the Federal Reserve is instead shifting its focus to supporting hiring and employment.

 

In the video above, Matt Diczok, head of Fixed Income Strategy for the Chief Investment Office, offers perspective on what a rate cut could mean for fixed-income investors. “Start by reviewing your bond investments,” says Diczok. “If lower rates are on the way, shifting some short-term bonds to longer durations could help you lock in higher income before a rate cut pushes yields down.”

 

For latest insights on the markets, tune in regularly to the CIO's Market Update audiocast series.

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Important disclosures

The opinions expressed are as of 8/13/2025 and are subject to change.

 

Investing involves risk, including the possible loss of principal.

 

Past performance is no guarantee of future results.

 

Investing in fixed-income securities may involve certain risks, including the credit quality of individual issuers, possible prepayments, market or economic developments and yields and share price fluctuations due to changes in interest rates. When interest rates go up, bond prices typically drop, and vice-versa. Treasury bills are less volatile than longer-term fixed income securities and are guaranteed as to timely payment of principal and interest by the U.S. government. The risk that exchange rate fluctuations will reduce the value of returns arises when investments denominated in foreign currencies are purchased.

 

The Chief Investment Office (CIO) provides thought leadership on wealth management, investment strategy and global markets; portfolio management solutions; due diligence; and solutions oversight and data analytics. CIO viewpoints are developed for Bank of America Private Bank, a division of Bank of America, N.A., (“Bank of America”) and Merrill Lynch, Pierce, Fenner & Smith Incorporated (“MLPF&S” or “Merrill”), a registered broker-dealer, registered investment adviser and a wholly owned subsidiary of Bank of America Corporation (“BofA Corp.”).

 

BofA Global Research is research produced by BofA Securities, Inc. (“BofAS”) and/or one or more of its affiliates. BofAS is a registered broker-dealer, Member SIPC and wholly owned subsidiary of Bank of America Corporation (“BofA Corp.”).

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