The U.S. market has priced in a more aggressive path of rate cuts following the larger-than-expected tariffs and potentially higher-than-expected probability of recession from them. As of now, 3.5x 25-basis-point cuts are expected by December 2025, which implies a terminal rate of 3.4% and is a sharp increase from just 1.4 cuts priced in at the start of the year.

More recent economic data suggests the market may be overreacting to growth risks, but probabilities of a slowdown and future inflation expectations are both changing rapidly. In response, we continue to manage duration very tactically within our long/short mandates while maintaining a constructive long-term view in long-only mandates.