Today I read a research report from the globally renowned investment firm Franklin Templeton. The firm is very bullish on US long-term Treasury bonds for three reasons:

First, the probability of the Federal Reserve raising interest rates in the future is very small, and it is more likely to cut rates. Rate cuts are beneficial for US bonds, especially long-term Treasury bonds. Some might ask, why are rate cuts good for US bonds? Here's how to understand it: for example, before a rate cut, suppose the yield to maturity on a 10-year Treasury bond is 4.5%. After the rate cut, market interest rates decline, right? Then the bond with the previous 4.5% yield becomes highly sought-after. When more people want to buy it, the price naturally rises. Those who invested in domestic bonds over the past two years should have seen decent returns. Why? Because the past two years have been an environment of rate cuts and reserve requirement reductions in China. So remember this rule: in a rate-cutting environment, investing in bonds is often a good choice. Bullish on US bonds.

The second reason to be bullish on US bonds is the large amount of money in US money market funds, which will be a key driver pushing up US bond prices. The scale of US money market funds has grown from less than $3 trillion in 2017 to over $6 trillion in 2024—more than doubling in seven years. Why are so many people buying money market funds? High interest rates and low risk. Sounds great, right? But if the Fed cuts rates in the future, those yields will drop immediately and become less attractive. Then, some of that money will inevitably flow out—either into the stock market or into Treasury bonds. With stock valuations already relatively high, this money is more likely to flow into Treasury bonds, pushing up their prices.

The third reason to be bullish on US bonds is that they can act as insurance. What kind of insurance? If the US economy runs into trouble, US stocks will surely fall. In that case, the Fed would not only cut rates but slash them aggressively, causing US bonds to surge. This would hedge against the risk of stock market declines due to economic weakness.

Given these three reasons, I think allocating to US bonds is indeed a high-probability winning strategy. However, remember that the only constant in this world is change. Whether the future unfolds as predicted is anyone's guess. So in investing, you must take it step by step—what we call "bold conjectures, careful verification." If things don’t go as expected, be sure to correct course in time.