After a short break on Monday, the price of US treasury bond bonds resumed rising again on Tuesday, and the yield fell for as many as five days in the past six trading days. As investors welcomed the auction of 20-year bonds, and with the further poor performance of retail sales data, investors' expectations for the Federal Reserve to cut interest rates twice this year also continued to increase.
Market data shows that the yield of US Treasury bonds with different maturities closed down overnight. Among them, the 2-year US Treasury yield fell 4.9 basis points to 4.725%, the 5-year US Treasury yield fell 5.9 basis points to 4.25%, the 10-year US Treasury yield fell 5.8 basis points to 4.228%, and the 30-year US Treasury yield fell 4.9 basis points to 4.359%.
The latest report released by the US Department of Labor on Tuesday showed that due to the decline in gasoline and car prices leading to a decrease in revenue for gas stations and car dealerships, the growth in US retail sales in May was lower than expected - retail sales in May only increased by 0.1% month on month, while market expectations were 0.2%. The April data was further revised down from 0% to -0.2%.
In recent months, retail sales have been distorted due to the earlier Easter date this year. However, despite this, the slowdown in sales growth has begun to become apparent due to the rise in prices and interest rates forcing households to prioritize basic necessities and reduce disposable expenses.
Matt Eagan, portfolio manager at Loomis Sayles, said, "There seems to be increasing evidence that the US economy is declining. In the first half of this year, I was surprised by the resilience of the economy in the first quarter. But now we seem to have reached a marginal softening stage. This sets the stage for the Federal Reserve to truly take (easing) action at some point by the end of this year."
In fact, since entering the second quarter, the cooling trend of the US economy has become increasingly evident. Economic indicators such as weakened price pressures and weak retail sales have provided support for the Federal Reserve's interest rate cuts. This has also led to a remarkable phenomenon: although the Federal Reserve's June chart indicates that it will only cut interest rates once this year, the pricing of the interest rate market still firmly believes that the Federal Reserve will cut interest rates twice.
According to data from the federal funds rate futures market, after the release of overnight US retail sales data, traders believe that the likelihood of a September rate cut has further increased from about 60% late Monday to about 67%. The magnitude of interest rate cuts within the year is expected to reach over 48 basis points, almost completely pricing two rate cuts.
The change in interest rate pricing has actually been reflected in all aspects of the US bond market.
The US Treasury Department issued US $13 billion of 20-year treasury bond on Tuesday, and the yield of the winning bid fell to 4.452%, far lower than 4.480% of the pre issuance trading yield as of 1 p.m. EDT. The bidding multiple is 2.74 times, higher than the average of 2.67 times in the past six bids. It can be said that the excellent performance of this 20-year US bond auction further continues the hot demand for the 10-year and 30-year US bond auctions last week.
In the past, 20-year US bonds were usually the most unpopular maturities of US treasury bond bonds. However, at present, even such bonds, which were not popular in the past, have been warmly pursued by the market.
The auction shows that only 5.8% of the primary dealers who have the obligation to purchase all the bonds that have not been auctioned in order to prevent the auction from aborting were matched, which is the lowest level on record since the re sale of treasury bond in May 2020; The proportion of indirect bidders being allocated increased to 77.9%, the second highest in history.
Many market participants said that bond market traders are now betting that US treasury bond bonds are expected to rise sharply, and re entered the bullish trade that fled before the CPI data and the Federal Reserve's resolution were released last week.
In the past week, investor demand for futures contracts benefiting from the rebound in the bond market has surged again, and the momentum of the spot market is also strengthening. A survey by JPMorgan Chase shows that the US Treasury spot market has seen its largest net long in about a month. Position data shows that it was the newly emerging long positions that dominated the rise of the bond market last week. Last Friday, the 10-year US Treasury yield fell below 4.20% for the first time since April 1st.
The number of open contracts has also significantly increased. The pattern of open interest contracts is consistent with short covering, as the swap market has re priced around the Federal Reserve's two interest rate cuts this year.
The data from the Commodity Futures Trading Commission (CFTC) in the United States also reflects a similar trend. Prior to the release of CPI data last Wednesday, asset management companies had been actively closing short positions in futures linked to guaranteed overnight financing rates, and they had turned into net long positions for the first time since July 2023.