The overall decline in US Treasury yields: Has the lingering shadow of the bond market on Wall Street finally dissipated?
海角七号
发表于 2024-4-18 10:00:30
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After a continuous rise in the past week, the US Treasury yield finally fell on Wednesday, temporarily easing the consecutive days of selling in the bond market. On Wednesday, there were no heavyweight indicators released for economic data, but the release of the Federal Reserve's Brown Book and the New York Federal Reserve's annual report on open market operations still received attention from some investors. Especially for the latter, there is a clear roadmap for the Federal Reserve to exit QT in the future.
Market data shows that the US Treasury yield fell overnight, with the 2-year Treasury yield falling 5.3 basis points to 4.943%, the 5-year Treasury yield falling 8.4 basis points to 4.624%, the 10-year Treasury yield falling 7.9 basis points to 4.594%, and the 30-year Treasury yield falling 6.1 basis points to 4.705%.
Joe Kalish, Chief Global Macro Strategist at Ned Davis Research, said that given the recent sharp decline in the bond market and the overall assurance from the Federal Reserve that interest rates will be lowered this year, some investors may be trying to profit and lock in profits.
Kalish believes that "Powell confirmed this week that the Federal Reserve will not consider further rate hikes as some analysts speculate. This indicates that rate cuts have been postponed, but have not completely derailed." He added that the two-year Treasury yield once reached above 5%, which looks very attractive.
The US Treasury Department auctioned US $13 billion of 20-year US treasury bond bonds on Wednesday. Although the winning interest rate reached the second highest level on record, the auction still received strong demand from many other indicators, which also eased the selling pressure on the bond market.
It is reported that the winning interest rate for this auction is 4.818%, which is significantly higher than the previous (March 19) 4.542%, but about 2.5 basis points lower than the pre issuance interest rate of 4.843%. The bidding multiple for this auction is 2.82, the highest since June last year, and also higher than the average level of 2.65 for the past six reissues.
In the past few weeks, investors and the Federal Reserve have reassessed the necessity of interest rate cuts amid signs of resilience in US economic data, leading to a sell-off in the bond market. Federal Reserve Chairman Powell said in his latest speech on Tuesday, "Before lowering interest rates, they need to see the driving factors of inflation weaken. If inflation continues to rise, we can maintain interest rates at the current limit level for the necessary time."
Many industry insiders believe that although the sell-off in the bond market eased on Wednesday, it is clearly not yet time to completely turn the tide. Sam Millette, head of fixed income at Commonwealth Financial Network, said that the market is taking a breather after experiencing a considerable degree of selling last week, but if other economic data or Federal Reserve officials suggest that inflation may accelerate again, the easing of selling on Wednesday may be short-lived.
"Powell made it clear that the Federal Reserve is willing to maintain higher interest rates for a longer period of time and continues to rely on data, which could push the 10-year Treasury yield back to its nearly 20-year high hit in October last year," Millette added.
The "Brown Book" report on economic conditions released by the Federal Reserve on Wednesday shows that US economic activity has "slightly expanded" in recent weeks, and companies say the difficulty of shifting costs is increasing. The Brown Book also mentioned that half of the regional Federal Reserve has noticed an increase in energy prices, and some Federal Reserve points out that insurance rates are rising. Due to the difficulty of companies transferring these costs to consumers and customers, their profit margins are under pressure.
In addition, according to the two scenarios predicted by the New York Federal Reserve in its annual report, the Fed may end its balance sheet contraction by mid-2025 or early in the year, and bank reserve balances will fall to around $2.5 trillion or $3 trillion the following year. Federal Reserve officials began discussing a slowdown in balance sheet tightening at last month's policy meeting, but no decision was made at the meeting.
In the scenario described in the New York Fed report as having "high reserves", the balance sheet size will be reduced to around $6.5 trillion, while in the scenario of "low reserves", the balance sheet size will be reduced to $6 trillion.
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