The yield of US treasury bond bonds fell on Wednesday after the sale of a strong US $43 billion seven-year treasury bond bond benchmark. Buying caused by the end of quarter rebalancing effect is further supporting the bond market. The upcoming US PCE price index and speech by Federal Reserve Chairman Powell, which will be released this Friday, may provide the latest guidance for the Federal Reserve's interest rate cut path for the year
However, given that the US financial markets will be closed on Friday due to Good Friday, more market reactions may be delayed until early next week.
Market data shows that the yield of US Treasury bonds with different maturities generally fell overnight. As of the end of the New York session, the 2-year US Treasury yield fell 2.2 basis points to 4.581%, the 5-year US Treasury yield fell 3.5 basis points to 4.191%, the 10-year US Treasury yield fell 4.2 basis points to 4.195%, and the 30-year US Treasury yield fell 4.9 basis points to 4.351%.
At present, the 10-year US Treasury yield, known as the "anchor of global asset pricing," has gradually moved away from the high it approached earlier this month. After two consecutive trading days of decline, the benchmark US Treasury yield has reached a two-week low.
Some industry insiders attribute the rebound of US Treasury bonds towards the end of the month to the quarter end rebalancing effect. Institutional investors and pension funds typically have strict asset allocation restrictions and assess market risk exposure at the end of the month and quarter. The S&P 500 index has risen 8.8% since the beginning of 2024, while global bonds have fallen by about 2%, which means these funds may need to sell more stocks and buy bonds than usual.
Goldman Sachs Group announced on Tuesday that as the quarter approaches its end, retirement funds may sell approximately $32 billion in US stocks to rebalance their positions, which will be the largest adjustment since June 2023.
Of course, with the release of a series of global central bank interest rate resolutions last Monday, bond investors have generally believed that global monetary policy leaders, including the Federal Reserve, European Central Bank, and Bank of England, are expected to gradually lower interest rates in the middle of the year, which has also eased the overall selling pressure on the global bond market.
Kim Rupert, Global Fixed Income Managing Director at Action Economics, said, "They told us they will cut interest rates. The only issue now is the magnitude and timing of the rate cut. So, yes, I think basically everyone is looking forward to it."
"Although there are also opinions in the market that say, 'Oh, well, they won't cut interest rates in June, they will only cut interest rates twice this year instead of three.' So the market trend is going back and forth. But basically, people expect at least one or two interest rate cuts," she said.
According to the FedWatch tool of the Chicago Mercantile Exchange, the latest estimate by interest rate futures traders is that the likelihood of the Federal Reserve cutting interest rates in June is 70.4%, higher than 57.9% a month ago.
Last week, the Swiss central bank unexpectedly announced a rate cut, becoming the first G10 central bank to cut interest rates at the turning point of this cycle.
The Swedish central bank maintained its key interest rate at 4.00% as expected on Wednesday, but stated that if inflation continues to fall towards its target of 2%, it is likely to begin a series of interest rate cuts from May.
In terms of US debt auction, the US Treasury Department auctioned US $43 billion of seven-year treasury bond bonds on Wednesday, and the final bid winning interest rate was 4.185%, significantly lower than the previous 4.327%, and the bid multiple was 2.61, higher than the previous 2.58. Only 12.86% of primary dealers with the obligation to purchase all failed bonds to prevent abortive auction were matched.
After the auction ended, the 7-year US Treasury yield fell 3.8 basis points to 4.197% in late trading. Rupert pointed out, "This auction was very successful. It was the best one in several months, and now is a good time to earn returns."
John Madziyire, head of Vanguard's treasury bond department, said recently that the yield ceiling of 10-year US treasury bond bonds is more likely to be around 4.5%. From another extreme perspective, if inflation returns to a downward trajectory, he believes that the yield may drop to 3.5%, even without an economic recession, which would prompt the Federal Reserve to significantly lower interest rates.
Because of this, Madziyire said that as long as the yield of 10-year US treasury bond reached about 4.35%, which is the highest point in the recent range, his team would be happy to buy more US treasury bond. He also believes that even if the Federal Reserve does not cut interest rates, US treasury bond bonds can only "fall so much, unless you start to include the impact of interest rate increases".