Recent estimates of rate cuts have sent U.S. Treasury prices significantly higher, but Deutsche Bank AG’s private banking arm is warning investors to brace for increased volatility.

The warning came as the bank suggested U.S. policymakers may not ease as aggressively as traders expect.

The Fed is expected to begin its rate-cutting cycle next week, according to Stefanie Holtze-Jen, chief investment officer for Asia Pacific at Deutsche Bank in Singapore. The bank is forecasting a total of six rate cuts through September 2025. But that is far less than the roughly nine rate cuts investors had expected and could cause market turbulence if the mispricing continues.

The debate over how much the Fed will cut interest rates has had a significant impact on the US government bond market. Benchmark yields have fallen for four consecutive months, marking the longest decline in three years. This upward trend could pave the way for a sharp market correction if investors’ expectations are too optimistic compared to the Fed’s actual policy decisions.

Deutsche Bank’s private banking division has a track record of making accurate predictions in this area. Last year, it correctly predicted that the Federal Reserve would delay lowering borrowing costs, a stance that was considered anomalous at the time amid growing fears of a potential U.S. recession. The bank also predicted that the benchmark U.S. Treasury yield would reach 4.2% by the end of 2023, a level it reached last December.

“The market needs to be repricing, and of course there will be volatility as a result of that,” Holtze-Jen said in a recent interview. He added that the U.S. economy is on solid footing, especially from a consumer perspective, and he thinks that stability can continue.

Looking ahead, Deutsche Bank expects the yield on 10-year Treasury notes to rise to 4.05% by September next year from 3.63% now. The bank also predicts the U.S. economy will avoid a recession, matching the median estimate in a Bloomberg survey that the yield will reach 3.73% by the end of the third quarter of 2025.

*This is not investment advice.