The yield of US treasury bond bonds further climbed on Thursday. The US February PPI announced overnight exceeded expectations again, which continued the hot trend of CPI data earlier this week, and further increased the uncertainty of whether the Federal Reserve will cut interest rates in the first half of the year as widely expected by the market.
Market data shows that the overnight yield of US Treasury bonds with different maturities not only rose for the fourth consecutive trading day, but also increased significantly. Among them, the 10-year US Treasury bond yield, known as the "anchor of global asset pricing," achieved its largest daily increase since mid February, and the yield is also approaching a high for the year.
As of the end of the New York session, the yield on the 2-year US Treasury bond increased by 5.9 basis points to 4.708%, the yield on the 3-year US Treasury bond increased by 8.6 basis points to 4.476%, the yield on the 5-year US Treasury bond increased by 9.2 basis points to 4.296%, the yield on the 10-year US Treasury bond increased by 10.4 basis points to 4.297%, and the yield on the 30-year US Treasury bond increased by 9.4 basis points to 4.437%.
The data released by the US Department of Labor on Thursday showed that the Producer Price Index (PPI) for February far exceeded expectations, rising 0.6% month on month, the largest increase since August 2023, with an expected only 0.3%. This further indicates that the shadow of sticky inflation in the US is still lingering.
In terms of annual rate, the US PPI in February increased by 1.6% year-on-year, which is also higher than the expected 1.2% growth rate. The previous value was revised from 0.9% to 1%. Excluding food and energy prices, the core PPI in the United States increased by 2% year-on-year in February, which was 1.9% higher than expected and remained unchanged from the previous value.
Analysts generally indicate that the main reason for the higher than expected growth in US PPI in February is the rise in fuel and food prices, which further indicates that inflation is still intensifying. The data shows that the path for Federal Reserve policymakers to make greater progress in combating inflation remains uneven.
The Federal Reserve will hold a two-day monetary policy meeting next week and is expected to maintain interest rates in the current high range of 5.25% -5.5% by June. With the re explosion of overnight PPI, market expectations for the Fed's interest rate cut within the year have further weakened, and the latest pricing of swap contracts predicting interest rate changes for interest rate cuts before the end of the year is slightly below 75 basis points (three rate cuts).
The Federal Reserve observation tool of CME Group also showed that interest rate futures traders' bets on the Fed's rate cut in June further decreased from 66.7% on Wednesday to 62.8%.
"This data (PPI) has indeed pushed up market pricing. If you look at the market's pricing of interest rate cuts, June really feels like flipping a coin, rather than being able to immediately bite the cut like in the past few weeks," said Subadra Rajappa, the US interest rate strategy director at Faxing Bank in New York
In addition to the PPI, the initial unemployment benefit data released on Thursday for the week ending March 9th also performed better than expected - the number of people applying for unemployment benefits for the week was 209000, lower than the expected 218000. At the same time, retail sales in February were relatively disappointing, with a month on month growth of 0.6%, lower than the expected 0.8%, which has raised concerns among many industry insiders about the persistence of US consumer spending.
Ian Lyngen, Managing Director of Capital Markets and Head of US Interest Rate Strategy at Bank of Montreal, pointed out in a statement that we need to add that the retail sales performance in the first quarter hinted at the specter of stagflation - although this is only a preliminary sign and not enough to draw any broad conclusions. The knee jerk response to data is bearish bonds& Amp; Quota;
Nuveen's Chief Investment Officer, Saira Malik, stated in an interview on Thursday that "there is a struggle between inflation and consumers, and now inflation is winning the battle. The Federal Reserve's stance is very clear, and they want to see a broad downward trend in inflation before starting to cut interest rates. And we haven't seen this yet."
It is worth mentioning that Thursday was also the second consecutive day, and the rise in US bond yields had a significant drag on US stocks. As of Thursday's close, all three major US stock indices have fallen. Among them, the Dow Jones fell 137.66 points, a decrease of 0.35%, to 38905.66 points; The Nasdaq fell 49.24 points, or 0.30%, to 16128.53 points; The S&P 500 index fell 14.83 points, or 0.29%, to 5150.48 points.
Thierry Wizman, Macquarie's global foreign exchange and interest rate strategist, said, "I think one question is whether the yield of treasury bond bonds will continue to rise? If the yield will rise, will there be more downward space for US stocks? I think the answer to both is yes."
In fact, as shown in the figure below, the strength of the S&P 500 index itself has somewhat broken the close relationship between the two since last year, against the backdrop of the Federal Reserve's expectation of interest rate cuts continuing to shrink. Will this scene really continue for a long time? Investors may have reason to question this right now.