As crucial US CPI data is about to be released later this week, Tuesday (January 9th) saw limited volatility in US bond yields across various maturities, and the upcoming large issuance of government and corporate bonds has also put some pressure on bond prices.
Market data shows that the yield of US Treasury bonds with different maturities has generally fallen into a narrow consolidation trend overnight, and the fluctuation range of the yield of 2-year US Treasury bonds throughout the day has not exceeded 4 basis points. As of the end of the New York session, the 2-year US Treasury yield fell 1 basis point to 4.375%, the 5-year US Treasury yield fell 1.6 basis points to 3.978%, the 10-year US Treasury yield fell 1.3 basis points to 4.02%, and the 30-year US Treasury yield fell 0.6 basis points to 4.189%.
The US Treasury Department auctioned US $52 billion of three-year treasury bond on Tuesday, with the winning interest rate of 4.105%, which is lower than the yield of the secondary market in the same period at the bidding deadline, indicating that investors are willing to hold this batch of bonds without premium. The bidding multiple for measuring demand is 2.67 times, which is better than last month's 2.42 times, but slightly lower than the average level of 2.69 times.
After the auction, the yield of US Treasuries narrowed briefly, but the overall fluctuation was limited. The US Treasury Department will also auction 10-year and 30-year treasury bond bonds on Wednesday and Thursday, respectively.
"The current situation in the bond market is very unstable, and people are in the stage of price discovery. The main fundamental situation is that we are at the peak of policy interest rates. The Federal Reserve is moving towards an easing mode," said Angelo Manolatos, macro strategist at Wells Fargo Bank
The US December Consumer Price Index (CPI), which will be released on Thursday, is expected to provide more clues as to when the Federal Reserve may start cutting interest rates. The Producer Price Index (PPI) for the United States will also be released on Friday.
It is worth mentioning that at the beginning of this week, while the bond market was relatively calm, many authoritative figures and institutions in the bond industry have also expressed their opinions on the current situation of US bonds, including "Old Bond King" Bill Gross and the world's largest bond fund PIMCO, which he personally built in the past.
"Old Debt King": 10-year US Treasury bonds have been overvalued
At the end of last year, the "old debt king" Gross saw the trend right on the direction of US bond yields. He recently said that he is now away from treasury bond.
Gross wrote in a post on the X platform that 10-year US Treasury bonds have been overvalued, and if you need to purchase bonds, a 1.80% yield inflation protected bond is a better choice.
Gross co founded Pacific Investment Management Company PIMCO with others in the early 1970s. At the end of last year, he heavily bet that the Federal Reserve would cut interest rates in 2024 and profited millions of dollars from the surge in bonds. Earlier in August of last year, he had warned that bond bulls were being misled, and over the next two months, US Treasury yields did indeed hit a 16-year high.
At the beginning of this year, global bond prices experienced a significant decline last week due to widespread concerns among traders about the end of 2023's surge being too fast or too strong. The yield of benchmark 10-year treasury bond bonds jumped 17 basis points last week, the largest increase since October last year. Bond yields are inversely related to prices.
In another recent post, Gross stated that for those interested in the bond market, short-term bonds are a better choice at the moment. It firmly believes that the 10-year/2-year yield curve will end its inverted state and return to a positive value.
The yield on 10-year US Treasury bonds is still about 35 basis points lower than the yield on two-year US Treasury bonds. This most eye-catching yield curve has been in an inverted state since July 2022, which some believe indicates that the economy is about to enter a recession. For most of the past year, investors have been betting that the yield curve will normalize again.
PIMCO is laid out in this way
PIMCO, the US bond management company, said on Tuesday that although the market expected a so-called soft landing of the US economy against the backdrop of the Federal Reserve's expectation of interest rate cuts this year, it was too early to declare victory over inflation, and the risk of recession still existed.
The company stated in a report that in the event of an economic recession, it is expected that bonds will perform better than stocks in 2024, and given that bond yields have begun to rise, bonds are expected to provide a cushion in the face of re accelerating inflation.
However, after the Federal Reserve's expected interest rate cut at the end of last year drove bonds to rebound rapidly, PIMCO currently maintains a neutral attitude towards the so-called duration.
PIMCO economist Tiffany Wilding and Global Fixed Income Chief Investment Officer Andrew Balls wrote in a report, "Currently, we do not consider extending duration to be a brilliant trading tactic. The recent rebound in the bond market has brought global bond yields back within our expected range, and we take a neutral stance on duration amidst the constantly changing balance of inflation and growth risks."
Looking ahead, PIMCO believes that long-term bonds may once again be affected by concerns about the widening US fiscal deficit and increasing government bond issuance. Before the expectation of interest rate cuts injected optimism into the market, this concern led to the sell-off of long-term bonds last year.
PIMCO predicts that the long end of the US Treasury curve may further weaken due to anxiety about increased supply caused by the increase in bond issuance required to fund the massive fiscal deficit. At present, PIMCO is relatively more fond of the five-year to 10-year treasury bond, and holds a "reduction" position for the 30-year treasury bond.