Take advantage of the last two trading days to avoid volatility in international markets during the Lunar New Year holiday; placing year-end bonuses in money market funds and short-term bonds is a good way to start the new year.

Background: The tug-of-war between strong data and policy expectations has led to intense fluctuations within the interest rate range.

Last night (02/11), the U.S. Department of Labor released January's non-farm payroll data, showing an increase of 130,000 jobs, surpassing market expectations of 70,000. The unemployment rate dropped from 4.4% to 4.3%. This robust data reshaped the market's assessment of the interest rate path. The FedWatch tool indicates that the probability of a rate cut in March is now only about 8%, with the likelihood of a June rate cut revised down to around 50%. U.S. Treasury yields have been oscillating within a range, reflecting the market's repricing of the Federal Reserve’s policy pace.

Perspective: How should we interpret the data point of '130K+4.3%'?

On the surface of the data, this is a clear signal that the economy has not entered a recession, giving the Federal Reserve more confidence to delay interest rate cuts. However, it also poses a dilemma for the Fed. The Fed’s core mandate comprises only two tasks: controlling inflation and stabilizing employment. Controlling inflation often requires cooling down the economy (maintaining higher interest rates), which could increase unemployment; while stabilizing employment tends to stimulate the economy (cutting interest rates), but risks fueling inflation. This trade-off has been the main reason for the repeated fluctuations in each rate decision since 2025, causing ongoing market volatility.

Beyond one-time data points, the trend is more important. If we take into account the significantly revised-down data from recent months, although this report indicates 'surface strength,' the underlying labor market still needs time to consolidate. This makes the Federal Reserve more inclined towards 'delaying rate cuts' rather than 'not cutting at all,' maintaining a cautious wait-and-see stance.

Strategy Recommendation: Slow Rate Cuts Favor 'Short-Duration Bonds' with Lower Volatility

Amid market anxiety over delayed rate cuts, investors focused on short-duration bonds may find this a period of stability and preservation. Based on the above context and perspective, under the current situation of 'gradual rate cuts,' short-duration bonds exhibit excellent defensive characteristics—short durations lead to smaller price fluctuations while still providing relatively attractive coupon income.

When market expectations for rate cuts were high at the end of last year, we remained firmly committed to short-duration bonds as the core investment strategy because our team's core logic has always been: in an uncertain environment, prioritize certainty in the short end of the bond market. Now, facing policy shifts by the Fed since the beginning of the year, corrections in tech stock valuations, and surprisingly strong economic data from the labor market, every market fluctuation has become a severe test of the team's investment capabilities.

Conclusion: Discipline, Insight, and Long-Term Steadfast Investment Philosophy

These fluctuations once again confirm the forward-looking vision and robust execution of our investment team. In an environment where expectations for rate cuts have been volatile, sticking to a strategy focused on short-duration bond trading has not only effectively reduced portfolio volatility but also provided clients with predictable returns. This is precisely where our management team continues to offer investors 'certainty' in uncertain times through their core investment capabilities.

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