After hitting the 5% mark at the beginning of this week and falling all the way back, long-term US bond yields staged the usual "frenzy" drama of the past few months on Wednesday (October 25th), with single day basis point increases in US bond yields for five-year and above maturities reaching double digits. The overnight five-year treasury bond auction showed weak demand, and data showed that sales of new homes in the United States accelerated in September, which further supported the market's expectation that the US federal funds rate would remain high for a long time.
Market data shows that US bond yields rose overnight, with the two-year US bond yield rising 1.3 basis points to 5.131%, the five-year US bond yield rising 10.7 basis points to 4.933%, the 10-year US bond yield rising 13.6 basis points to 4.963%, and the 30-year US bond yield rising 15.3 basis points to 5.095%.
The sluggish demand for five-year treasury bond issued by the US Treasury on Wednesday has largely exacerbated the sell-off in the US bond market, as the market has become more worried about the further expansion of treasury bond to be issued next week.
The US Treasury Department issued US $52 billion of five-year treasury bond on the same day, with a bid winning yield of 4.899%, nearly 2 basis points higher than the pre issuance trading level at the bidding deadline at 1 p.m. New York time, which indicates that investors demand to buy bonds at a premium, and demand is lower than traders' expectations.
Bidders' participation indicators also showed weak performance. Due to weak investor demand, the bidding multiple this time was only 2.36 times, which is not only lower than last month's 2.52 and the average of the past six auctions of 2.55, but also the worst since September last year.
John McIntyre, the managing director of PGIM Fixed Income, said that to some extent, it showed that the auction of treasury bond continued to perform poorly. The market is currently working hard to cope with the new supply.
In fact, the sharp rise in the yield of US treasury bond bonds in recent weeks, in addition to the market expectation that the Federal Reserve will maintain high interest rates for longer than previously expected, has also been affected by the increase in the supply of treasury bond. Concerns about the imbalance between supply and demand have been largely reflected in the term premium. In August, the issuance of US treasury bond bonds increased for the first time in more than two years. The next quarterly announcement is scheduled for November 1, and the scale is expected to expand.
Thursday's US $38 billion seven-year treasury bond tender will be the last issue this week. However, considering that the upcoming issuance window period will continue until November 7th, this may help stabilize the market.
In addition to poor US bond auctions, strong US economic data overnight also caused a sell-off in US bonds. According to data released by the US government on Wednesday, sales of newly built single family homes increased at an annualized rate of 12.3% to 759000 units in September. This data is higher than the expectations of all economists surveyed by the media.
Although mortgage rates are currently at their highest levels in decades and housing prices are constantly rising, the overall new residential market in the United States has remained strong. Although these factors may make more potential buyers sit back and wait, considering the lack of housing resources in the second-hand housing market, it still supports the demand for new residential properties so far.
Tim Sauermelch, Global Macro Trading Director at SEI Investment, pointed out that the data continues to be much stronger than most people imagine, and the resilience of the economy raises questions about how high interest rates are truly restrictive.
Hans Mikkelsen, Chief Credit Strategist at Dao Ming Securities, also stated, "The Federal Reserve has no choice but to continue emphasizing the message that interest rates will remain high for a longer period of time until they make sufficient progress on inflation
The Nasdaq officially announced a 10% correction zone
It is worth mentioning that as US bond yields further rose and Google's poor financial results led to a sharp drop in stock prices, the Nasdaq Composite Index retreated into the correction zone on Wednesday. This technology stock concentrated index fell 2.4% on Wednesday, dropping more than 10% from its recent high and also setting one of the largest daily declines this year.
The stock price of Google's parent company Alphabet plummeted 9.5% on Wednesday, causing the company's market value to evaporate by $166.64 billion overnight, making it the fifth largest daily loss in the history of a US listed company, equivalent to losing the market value of a Nike company.
In the eyes of some analysts and investors, the recent fluctuations foreshadow more volatility in the future and also sound an alarm for the stock market's stars - giant technology stocks, who are prone to significant fluctuations after performance announcements.
McIntyre from PGIM Fixed Income stated that higher bond yields and lower stock markets are not a good environment for financial assets.
Evelyne Gomez Liechti, a strategist at Mizuho International, predicted that "US bond yields may fluctuate in the near future, but we do believe that the latest US data supports the long-term rise of treasury bond bond yields. If the 10-year treasury bond bond yield tests the 5% level again, we will not be surprised."