Treasury yields (^FVX, ^TNX, ^TYX) are trending upward as investors await July's Personal Consumption Expenditure (PCE) index — the Federal Reserve's preferred inflation gauge — to be released this Friday. With speculation mounting around the extent of the Fed's planned interest rate cut in September, WisdomTree head of fixed income strategy Kevin Flanagan joins Catalysts to share his bond market outlook.

Flanagan points out that the Fed funds rate is set to begin its cutting cycle at a level unseen in over two decades.

"You have a whole generation of investors who haven't experienced rate cuts at these levels of interest rates. I think that plays a big role in determining how you should be making your decisions for fixed income investments," he explains.

He emphasizes that the Fed's current focus is on its dual mandate to balance the labor market with its inflation target of 2%. Flanagan notes that while the labor market is cooling, "it's not falling off a cliff." This suggests that the fixed income market may be "a little bit overdone" at current levels, indicating that the market might be "ahead of itself."

Regarding the magnitude of a potential Fed rate cut, Flanagan advises investors to rely on data, which currently suggests a 25-basis-point cut. "Much as the Fed is data-dependent, the Treasury market is data-dependent," Flanagan states.

For more expert insight and the latest market action, click here to watch this full episode of Catalysts.

This post was written by Angel Smith