The US bond market overall weakened on Wednesday (January 24th local time), with poor results in the issuance of 5-year US bonds in the primary market. The US Treasury Department may announce a larger scale bond issuance plan for the period from February to April in a week. Due to this disturbance, yields on all maturities have risen, with 30-year US bond yields hitting a new high since December 5th, 2023.
According to data from the US Treasury Department, as of the close on Wednesday (January 24th), the collective yield on US Treasury bonds has risen. The yield on 2-year US bonds has risen by 0.5BP to 4.39%, the yield on 3-year US bonds has risen by 4.7BPs to 4.197%, the yield on 5-year US bonds has risen by 4.8BPs to 4.095%, the yield on 10-year US bonds has risen by 5BPs to 4.183%, and the yield on 30-year US bonds has risen by 4.7BPs to 4.411%.
In addition, the size of the Federal Reserve's Overnight Reverse Repurchase Agreement (RRP) was $639.56 billion, compared to $621.195 billion in the previous trading day.
Earlier, the bidding results in the primary market were sluggish. The bid winning interest rate of the US $61 billion five-year treasury bond bonds issued by the US Treasury Department on the same day was 4.055%, the bid winning interest rate of the last time on December 27, 2023 was 3.801%, the bid winning multiple of this time was 2.31 times, and that of the previous time was 2.50 times.
Industry insiders point out that the strong stickiness of wages in the US labor market, high household net wealth, and geopolitical conflicts are impacting prices. These three factors suggest that the international financial market may lower its expectations for the timing and magnitude of the Federal Reserve's interest rate cut.
Specifically, the tightening cycle of the Federal Reserve has not brought about a significant decline in wage income and asset prices in the US labor market, and wage stickiness and wealth effects are the two fundamental reasons for the resilience of US inflation. From the perspective of the transmission and impact of monetary policy on labor market wage income and asset prices, the effectiveness of US monetary policy has not been fully realized, and there is a significant lag in monetary policy.
Gregory Faranello, head of US interest rate trading and strategy at AmeriVet Securities, stated in a report that the US PCE inflation data to be released this Friday is very important, but it is unlikely to change the outcome of next week's Federal Reserve meeting, as "monthly inflation data and progress are important" as decision-makers consider interest rate paths.
According to economists surveyed by The Wall Street Journal, core PCE is expected to slow down from 3.2% to 3% in December, still far from the Federal Reserve's target of 2%. It is expected that the Federal Reserve will maintain interest rates unchanged next week and begin cutting rates in March or May.
According to CME's "Federal Reserve Observation", the probability of the Federal Reserve maintaining interest rates in the range of 5.25% to 5.50% in February is 97.4%, and the probability of a 25 basis point rate cut is 2.6%. The probability of maintaining interest rates unchanged by March is 58.4%, the probability of a cumulative 25 basis point rate cut is 40.5%, and the probability of a cumulative 50 basis point rate cut is 1.0%.