① In the past two trading days, the 10-year US Treasury yield, known as the “anchor of global asset pricing,” has accumulated a cumulative increase of nearly 30 basis points. This is the biggest two-day increase since June 2022;
② And you need to know that June 2022 can almost be considered the most aggressive phase of the Federal Reserve's current austerity cycle.
Due to strong US economic data, which reinforces the message sent by Federal Reserve officials, including Federal Reserve Chairman Powell, that interest rate cuts are unlikely to begin before May, the US bond market has continued to experience what can be called a crazy sell-off over the past two trading days.
Market data shows that US bond yields for various maturities collectively rose sharply on Monday, and bond yields and prices reversed.
Among them, 2-year US Treasury yields rose 11.7 basis points to 4.483%, 5-year US Treasury yields rose 13.8 basis points to 4.123%, 10-year US Treasury yields rose 13.7 basis points to 4.161%, and 30-year US Treasury yields rose 11.7 basis points to 4.339%.
After the January ISM service activity index released on Monday surpassed economists' expectations, the 10-year US Treasury yield quickly recorded a double-digit intraday increase, while the 5-year US Treasury yield hit an annual high of 4.13%.
And on Friday, the US Treasury bond market just experienced its worst day in nearly a year — two-year and five-year US bond yields rose by more than 15 basis points, respectively. Previously, strong non-farm payrolls data for January dashed the market's hopes for a quick shift to a loose monetary policy in the US.
Taken together, in the past two trading days, the 10-year US Treasury yield, known as the “anchor of global asset pricing,” has accumulated a cumulative increase of nearly 30 basis points. This is the biggest two-day increase since June 2022.
However, you should know that June 2022 can almost be considered the most aggressive stage in the current round of the Federal Reserve's austerity cycle — in that month, the Fed's interest rate hike reached 75 basis points for the first time, and the downsizing process officially began. It can be said that in the current 2024 “year of interest rate cuts” recognized by the industry, US bonds have unexpectedly emerged from a crazy sell-off market similar to that of a year and a half ago, which will inevitably make all bond market traders feel incredible.
Undoubtedly, the sharp rise in US bond yields at this stage is also the most intuitive feedback from investors that they think the Federal Reserve will wait a little longer before cutting interest rates.
In a television interview on Sunday local time, Federal Reserve Chairman Powell reiterated his comments after the January interest rate decision — that it may be too early for the Federal Reserve to cut interest rates at the next policy meeting to be held in March. Powell said, “We want to see more evidence that inflation is falling sustainably to 2%. Our confidence is rising. We just want to have more confidence before we take the very important step of starting to cut interest rates.”
Coincidentally, Minneapolis Federal Reserve Chairman Kashkari also made similar hawkish remarks on Monday. There will also be about nine Federal Reserve officials speaking during the rest of the week.
Zachary Griffiths, senior fixed income strategist at CreditSights, said that these comments from central bank officials were also a factor affecting Monday's market. He pointed out, “Combined with the latest economic data, all of this suggests that all previous optimism about falling inflation may have gone too far.”
Just four weeks ago, investors thought the March interest rate cut was almost a foregone conclusion. However, according to the CME (CME) Fed Watch tool, traders currently expect that the possibility that the Fed will cut interest rates in March is only 15%, down from 46% a week ago, and the possibility of cutting interest rates in May is 64%.
Tom di Galoma, managing director of BTIG and co-head of global interest rate trading, said the rise in yields was due to, “Powell's hawkish remarks, better-than-expected employment data we saw, and bond supply issues — increasing supply. He added that the market was also “overbought” last week.
Looking ahead to the remaining trading days of the week, Ian Lyngen, head of capital market interest rate strategy at the Bank of Montreal, said that expectations for the next three days of treasury bond auctions are also putting additional upward pressure on yields.
According to the schedule, the US Treasury will bid 121 billion US dollars of interest-bearing treasury bonds this week, including 54 billion US dollars of three-year treasury bonds to be issued on Tuesday, 42 billion US dollars of 10-year treasury bonds on Wednesday, and 25 billion US dollars of 30-year treasury bonds on Thursday.
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