The benchmark 10-year US Treasury yield further fell to a three week low on Thursday, as investors seemed more confident in entering the market after experiencing the 'Super Wednesday', and US Treasury prices continued their surge. The day before, the US Treasury Department announced that the growth rate of long-term treasury bond supply in the fourth quarter was lower than expected. At the same time, the signal released by the Federal Reserve resolution was interpreted by the industry as dove, which greatly relieved investors in the US stock and bond market.
Market data shows that although the overnight two-year US bond yield has rebounded after a significant decline in recent times, the decline in long-term US bond yields is still significant. As of the end of the New York session, the two-year US Treasury yield rose 4.6 basis points to 5%, the five-year US Treasury yield fell 2 basis points to 4.64%, the 10-year US Treasury yield fell 7.7 basis points to 4.662%, and the 30-year US Treasury yield fell 13.5 basis points to 4.797%.
At present, the 10-year and 30-year US Treasury yields have been trading continuously for several consecutive days, with at least double-digit basis point declines during the session. In just the past five days, the 10-year US Treasury yield has plummeted by about 35 basis points, rapidly moving away from the 5% mark hit last month.
From the changes in the entire US Treasury yield curve, it can be seen that among the current US Treasury yields with maturities of 2 years and above, only the historically unpopular 20-year US Treasury yield remains above the 5% threshold.
The US Treasury Department announced on Wednesday that it will increase the auction size of longer-term debt for this quarter, but the increase was lower than market expectations. The Treasury also pointed out that it expects an additional quarter of auction size to meet its financing needs.
Zachary Griffiths, senior investment grade strategist at CreditSights, said, "We are now on the other side of a series of key data points and are sure to see a significant rebound. The quarterly refinancing statement from the US Treasury seems more likely to be the main driving force behind this week's significant yield changes, and I believe this view is correct
At the end of the two-day interest rate meeting on Wednesday, the Federal Reserve did not bring any hawkish surprises, which also made investors more confident to pursue the high yield of US treasury bond bonds. Griffiths pointed out that "the supply of bonds is lower than expected, and the Federal Reserve is currently in a state of suspension. All these have led to a rebound of treasury bond after a quite crazy slump in the past three months."
Gennady Goldberg, head of US interest rate strategy at Dao Ming Securities, also stated in a report on Thursday that "the rebound in the bond market today (Thursday) is still ongoing as the market is eager to try, and it seems that an upward trend is forming
As US bond yields continue to decline significantly, the trends of other related markets have also undergone significant shifts this week.
The US stock market rose for the second consecutive day on Thursday, with the S&P 500 index rising 1.9%, the largest daily gain since April. All 11 sub sectors of the S&P 500 index rose, with energy, utilities, and non essential consumer sectors leading the way. The Dow Jones Industrial Average rose over 560 points, or 1.7%, while the Nasdaq Composite Index rose 1.8%.
At the same time, the US dollar index continued to plummet, hitting its largest daily decline since September 11th overnight, and this week is likely to record its largest weekly decline since July.
Tonight's Focus on Non Agriculture
Looking ahead to the day, Wall Street traders are expected to shift their attention to the October non farm payrolls report on Friday evening. At present, the market expects the employment population to increase by 180000, far below the previous value of 336000, and the unemployment rate is expected to remain at 3.8%.
The "small non farm" ADP employment data released earlier this week has been below expectations for three consecutive months, which may indicate that the US job market is gradually cooling down. According to data released by American automatic data processing companies on Wednesday, the number of ADP jobs in the United States increased by 113000 in October, far below the expected 150000 but higher than the previous value of 89000.
Gennady Goldberg and Molly McGown, interest rate strategists at Dao Ming Securities, stated that they had established strategic long positions in 10-year US Treasury bonds before Friday's non farm data release, citing the inability of 10-year US Treasury yields to break through the key 5% level and the deteriorating outlook for the US economy.
We expect data to begin to weaken in the coming months, with an economic recession in the second quarter of 2024, which will put downward pressure on interest rates. Friday's non farm employment report should also begin to show some slowdown. The main risks faced by long trading are a soft landing in the United States and an increase in term premiums, but the cost of holding positions is now lower
It is worth mentioning that at this week's interest rate meeting, the Federal Reserve emphasized the impact of tightening the financial environment in both its monetary policy statement and Powell's post meeting press conference. However, with the significant rebound in the US stock and bond markets in recent days, the degree of financial tightening has begun to significantly ease.
In this regard, some industry insiders have also raised a question like a "dead cycle": if this scene continues, will it lead to Powell and his colleagues returning to the hawkish model in the future?