The US Treasury yield slightly fell on Monday as many investors began to take advantage of the recent decline in US Treasury prices to repurchase. The multiple sets of economic data to be released later this week may affect the Federal Reserve's estimate of the future path of interest rates.
Market data shows that the yield of US Treasury bonds with various maturities mostly fell overnight. Among them, the 2-year US Treasury yield increased by 0.5 basis points to 4.4%, the 5-year US Treasury yield decreased by 2.7 basis points to 4.033%, the 10-year US Treasury yield decreased by 2.5 basis points to 4.11%, and the 30-year US Treasury yield decreased by 1.5 basis points to 4.322%.
The US Treasury yield has risen significantly in the past few weeks as Federal Reserve decision-makers have undermined market speculation that interest rates will be cut soon as inflation cools at the beginning of the new year.
Traders in the federal funds rate futures market latest estimate that the likelihood of the Federal Reserve cutting interest rates in March has dropped to about 40%, and at the beginning of the year, this probability even exceeded 80%. As traders lower their expectations for the first rate cut by the Federal Reserve in March, they are now more concerned about the possibility of action in May.
Despite facing high interest rates, a series of indicators released by the United States last week still showed resilience, suggesting that the Federal Reserve may not turn too early to relax restrictions as previously expected. At present, the 10-year US Treasury yield, known as the "anchor of global asset pricing," has risen by over 20 basis points compared to the closing of the last trading day in 2023 (approximately 3.86%).
Do industry leaders think it's time to buy back?
However, it is quite interesting that at a time when market expectations for interest rate cuts are frequently hit and US Treasury bonds continue to cool down at the beginning of the year, some industry insiders currently believe that it seems possible to buy US bonds again now.
Last week, after the five-year treasury bond bonds of the United States suffered the worst decline since last May, Morgan Stanley and JPMorgan Chase, two major investment banks on Wall Street, suggested that investors could try to buy treasury bond of that period again.
"This is the downward trend we have been waiting for. Due to reduced fiscal support and colder weather, we believe there is downside risk in the US economic activity data released in February," said Matthew Hornbach, Global Head of Macro Strategy at Morgan Stanley, and other analysts in a report on January 20th
JPMorgan Chase also suggested investors to buy five-year treasury bond, because the yield of treasury bond in that period has climbed to the level in December last year. However, JPMorgan Chase also warned that the market's pricing of the Fed's early interest rate cut is still too aggressive. JPMorgan Chase expects the first rate cut by the Federal Reserve to be in June instead of May, and the swap contract has already fully priced the rate cut in May.
Jonathan Mondillo, North American fixed income manager at Abrdn Asset Management, said that the decline in US Treasury yields on Monday was "just a correction from the gains we saw last week.".
Mondillo believes that portfolio managers still have a lot of cash in their hands, and US bonds are a good investment destination.
Looking ahead to this week, investors will closely focus on the fourth quarter gross domestic product (GDP) data released on Thursday, as well as the personal consumption expenditure (PCE) price index data released on Friday.
The Treasury Department's bond issuance schedule this week is also more intensive: $60 billion of two-year treasury bond will be auctioned on Tuesday, $61 billion of five-year treasury bond will be auctioned on Wednesday, and $41 billion of seven-year treasury bond will be auctioned on Thursday. Some industry insiders are still concerned that this may put upward pressure on US bond yields.