MW Family offices favor this area of bonds ahead of potential Fed rate cuts, Goldman Sachs finds
By Christine Idzelis
Investors expect the Fed may cut interest rates next week
Yields in the Treasury market were falling in early afternoon trading Wednesday.
As the bond market signals the Federal Reserve may resume its interest-rate-cutting cycle as soon as next week, investors are weighing how much duration risk to take in fixed income.
Family offices this year appeared positioned for rate cutting by central banks, while continuing to show little appetite for long-dated bonds, according to a new report from Goldman Sachs Group on the findings of its 2025 survey of investors in that category.
Within the bond market, family offices have upped their exposure to securities with a duration of 3 to 5 years while decreasing allocation to shorter durations, Goldman found in comparing results from its last survey in 2023. Fifty-seven percent of respondents had fixed-income portfolios with an average duration within the 3- to 5-year range, a jump from 39% in Goldman's previous survey.
GOLDMAN SACHS
The preference of family offices for bond-market durations of 3 to 5 years comes as short-term rates are falling faster this year than long-term yields in the U.S. Treasury market. For example, the 2-year Treasury yield, which is sensitive to expected changes in the Fed's monetary policy, has seen a steeper drop so far in 2025 than 10-year and 30-year Treasury rates.
Investors are betting that the Fed will decide to lower its benchmark rate at its policy meeting that concludes Sept. 17, with federal-funds futures pointing to a high probability that the U.S. central bank will go with a cut of a quarter percentage point.
"The global landscape has changed since our last survey in 2023," Goldman said in its 2025 Family Office Investment Insights report. "Escalating international tensions, policy shifts, and the looming threat of trade wars are all shaping family office sentiment."
Markets became extremely volatile in April after President Donald Trump announced his "liberation day" tariffs, disrupting the global system of trade. But after the White House paused certain tariffs to make room for trade negotiations with countries, market volatility subsided and U.S. stocks rallied from their April low.
The S&P 500 SPX, Nasdaq Composite COMP and Dow Jones Industrial Average DJIA each notched a fresh record peak on Tuesday, marking the first time since early December that the three major U.S. stock-market benchmarks each closed at an all-time high on the same day, according to Dow Jones Market Data.
Family offices are "overwhelmingly risk-on," said Sara Naison-Tarajano, Goldman's global head of private wealth management capital markets, during a media briefing on the family office report at the bank's headquarters in New York. The report showed the findings from Goldman's survey of 245 family offices globally, with responses collected from May 20 to June 18.
Goldman found that family offices have increased their exposure to public-market equities compared with 2023, while also slightly increasing their allocation to fixed income.
GOLDMAN SACHS
They appeared to have little appetite for long-duration bonds, amid investor concerns over global fiscal pressures and inflation.
History shows 10-year Treasury yields BX:TMUBMUSD10Y don't necessarily fall on average in the Fed's rate-cutting cycles, according to an emailed note Wednesday from Jim Reid, global head of macroeconomic and thematic research at Deutsche Bank. Bond yields and prices move in opposite directions.
Reid noted that the low point in 10-year Treasury yields since May 2023 came the day before the Fed's current rate-cutting cycle began a year ago.
Tail risk
The top three investment risks identified by family offices in Goldman's 2025 survey were geopolitical conflict, political instability and economic recession.
Asked how they were positioning their portfolio for tail risk, if at all, the largest percentage of respondents pointed to geographic diversification in their investments, followed by gold (GC00) and U.S. Treasurys.
A "strikingly large proportion" of family offices in the Americas were not positioned for tail risk, at 35%, Goldman's report shows. That compared with just 14% for the EMEA region - referring to Europe, the Middle East and Africa - and 12% for the Asia-Pacific region known as APAC.
Meanwhile, the majority of family offices indicated in Goldman's survey that they expected an increase in economic protectionism, geopolitical risks and inflation over the next 12 months.
GOLDMAN SACHS
"Inextricably linked to discussions around tariffs are their implications on inflation and economic growth," Goldman said in its report. "Globally, 57% of family offices, including a higher proportion of respondents in the Americas, believe that inflation will rise in the next 12 months."
Historically, U.S. stocks have been "the best long-term hedge against inflation," Goldman said.
Read: With the traditional mix of stocks and bonds now riskier, here are ways to diversify, says BlackRock
Investors are now looking ahead to Thursday's U.S. inflation reading from the consumer-price index. The CPI data will give the Fed a look at inflation during August before it makes a decision next week about where to set interest rates.
Although inflation has been running above the Fed's 2% target, investors appeared certain on Wednesday that the central bank will deliver a rate cut next week following recent signs of weakening in the labor market.
Traders in the fed-funds-futures market on Wednesday reflected a 90.1% chance that the Fed will decide on Sept. 17 to reduce its benchmark rate by a quarter percentage point, according to the CME FedWatch Tool, at last check. They saw a 9.9% probability of a half-point cut.
The Fed has been holding its policy rate at a target range of 4.25% to 4.5% so far this year.
In the bond market, the yield on the 2-year Treasury note BX:TMUBMUSD02Y was declining about 2 basis points in early afternoon trading Wednesday to around 3.53%, according to FactSet data, at last check. The 10-year Treasury rate was falling about 5 basis points to around 4.03%, while the 30-year Treasury yield was BX:TMUBMUSD30Y retreating about 4 basis points to around 4.68%.
-Christine Idzelis
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(END) Dow Jones Newswires
September 10, 2025 13:32 ET (17:32 GMT)
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