The rebound in the US treasury bond bond market on Wednesday came to an abrupt end overnight, and this renewed sell-off was largely due to the fact that the "three leaders" of the Federal Reserve mentioned two words in their latest speech: "interest rate hike"!
John Williams, the third in command of the Federal Reserve and Chairman of the New York Fed, stated at a meeting in Washington on Thursday that another rate hike is not his basic prediction. But he also added, "If the data reminds us that we need to achieve our goals through interest rate hikes, then obviously we would want to do so."
Shortly after his words fell, the two-year US Treasury yield quickly surged by about 5 basis points to around 4.99%, once again approaching the 5% mark, approaching the high-end of the recent volatility range.
As of the end of the New York session, the yields on US Treasury bonds of all maturities have risen comprehensively. The 2-year US Treasury yield increased by 5 basis points to 4.993%, the 5-year US Treasury yield increased by 5.5 basis points to 4.679%, the 10-year US Treasury yield increased by 4.2 basis points to 4.636%, and the 30-year US Treasury yield increased by 2.5 basis points to 4.73%.
In fact, many Federal Reserve officials who made public speeches last night, including Atlanta Fed Chairman Bostic and Minneapolis Fed Chairman Kashkali, have also made extremely hawkish speeches. However, considering that the latter officials have previously stated the possibility of not lowering interest rates this year, their repeated hawkish remarks clearly cannot be compared to the importance of Williams' latest statement.
Industry insiders have stated that Williams' latest speech is undoubtedly more hawkish than his comments earlier in the past week. Although Williams also emphasized that raising interest rates is not his "baseline scenario," in his latest speech, he has begun to focus on the upward risk of inflation and stated that he does not feel the urgency of interest rate cuts. In contrast, he also stated in an interview on Monday that if US inflation can continue to gradually slow down, the Federal Reserve is likely to start cutting interest rates within the year, which is much milder than today's remarks.
From the perspective of pricing in the interest rate market, a recent detail that is not easily noticed is that at some brief moments in the past two trading days, the possibility of the Federal Reserve raising interest rates in May is even greater than the possibility of a rate cut (although the probability of both is almost negligible, and the next Federal Reserve meeting is almost certain to remain silent)
On Thursday, the interest rate swap market predicted that the Federal Reserve would only cumulatively cut interest rates by 38 basis points at the December meeting, less than the 43 basis points predicted at Wednesday's close.
In the bond market, after the US inflation data exceeded expectations last week, US bond yields have been continuously hitting their highs in the fourth quarter of last year. Faced with strong economic data and speeches from Federal Reserve officials, many fund managers and strategists have had to rethink their assumptions about the outlook for interest rates. Data shows that the Bloomberg US treasury bond Composite Index has fallen nearly 2% so far this month, giving back the 1.3% increase in March.
"The yield of US treasury bond bonds has gone through a cycle and has risen to the level a few months ago," said Aoifinn Devitt, chief global market strategist of Moneta.
Some industry insiders have begun to worry that the 10-year US Treasury yield, known as the "anchor of global asset pricing," may return to 5%. Ales Koutny, director of international interest rates at Vanguard, said that the US treasury bond bond market is approaching the level that may lead to large-scale selling, and the 10-year US bond yield may return to 5%.
Koutny said, "We are in a dangerous zone, and even a slight increase - breaking through the 4.75% key level - could force investors to abandon their bets on the rebound of US bonds, leading to a wave of selling and pushing yields to 2007 highs."
And this scene is likely to bring greater pressure to the prospects of the US stock market. On Wall Street, there has always been a slang term for "sell in May and then leave", but before May this year, some of the original bulls seem to have started to roll up and withdraw early.
The S&P 500 index fell 0.2% on Thursday, marking its fifth consecutive trading day of decline. Looking back at the trend of the index, since October 2023 (when the Federal Reserve turned the tide), the S&P 500 index has not experienced five consecutive days of decline before. The Nasdaq Composite Index also fell 0.5% on Thursday. So far, both have experienced a decline of nearly 5% in April.
Whether it is the Russell 2000 Index, Dow Jones, S&P 500 Index, or Nasdaq (from top to bottom), they are all experiencing their most intense pullback since September last year.
Note: The decline amplitude of each index from its peak value
Julian Emanuel, Chief Equity and Quantitative Strategist at Evercore ISI, stated that after falling from a historic high last month, the stock market is witnessing the beginning of a decline that may continue into the rest of 2024. Emanuel reiterated his goal of the S&P 500 index falling to 4750 points by the end of the year, which means the index will fall more than 5% from Thursday's closing price of 5011 points.