Financial Services Association, March 28 (Editor: Xiaoxiang) US Treasury yields fell after the strong 43 billion US dollar seven-year treasury bond standard on Wednesday, and buying due to the rebalancing effect at the end of the quarter is further supporting the bond market. The upcoming US PCE price index and Federal Reserve Chairman Powell's speech this Friday may provide the latest guidance on the Fed's interest rate cut path during the year.

However, given that the US financial market will be closed on Friday due to Good Friday, further market reactions may not be revealed until early next week.

Market data shows that US bond yields for various maturities generally declined overnight. By the end of the New York session, 2-year US Treasury yields fell 2.2 basis points to 4.581%, 5-year US Treasury yields fell 3.5 basis points to 4.191%, 10-year US Treasury yields fell 4.2 basis points to 4.195%, and 30-year US Treasury yields fell 4.9 basis points to 4.351%.

Currently, the 10-year US Treasury yield, known as the “anchor of global asset pricing,” has gradually broken away from the high level of the year reached earlier this month. After falling back for two consecutive trading days, the benchmark US bond yield has dropped to a two-week low.

Some industry insiders attributed the rebound in US debt towards the end of the month to the rebalancing effect at the end of the quarter. Institutional investors and pensions usually 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, and the cumulative decline in global bonds is about 2%, which means that these funds may need to sell more stocks and buy bonds than usual.

Goldman Sachs Group said on Tuesday that as the current quarter comes to an end, pension funds may sell about $32 billion in US stocks to rebalance positions. This will be the biggest adjustment since June 2023.

Of course, with the results of a series of global central bank interest rate decisions released last week, bond investors already generally believe that those at the helm of global monetary policy, including the Federal Reserve, the European Central Bank, and the Bank of England, will be expected to cut interest rates one after another in the middle of the year. This has also eased the overall selling pressure faced by the global bond market.

Kim Rupert, managing director of global fixed income at Action Economics, said, “They told us they would cut interest rates. The question now is simply the extent and timing of interest rate cuts. So yeah, I think everybody is basically looking forward to interest rate cuts.”

“Although there are opinions in the market, 'Oh well, they won't cut interest rates in June; they will only cut interest rates twice instead of three this year. ' Therefore, the market trend also went back and forth. But basically, people expect interest rate cuts at least once or twice,” she said.

According to CME's FedWatch tool, interest rate futures traders recently predicted that the possibility that the Fed would cut interest rates in June was 70.4%, up from 57.9% a month ago.

The SNB unexpectedly announced a cut in interest rates last week, becoming the first G10 central bank to cut interest rates during this cycle's inflection point.

The Riksbank kept the key interest rate at 4.00% as expected this Wednesday, but said that if the inflation rate continues to fall back to the 2% target, it is likely that a series of interest rate cuts will begin in May.

In terms of US bond bidding, the US Treasury held an auction of 43 billion US dollars of seven-year treasury bonds on Wednesday. The final bid interest rate was 4.185%, significantly lower than the previous 4.327%. The bid ratio was 2.61, higher than the previous 2.58. Only 12.86% of first-tier traders who have the obligation to buy all treasury bonds that fail to be auctioned off to prevent abortions are allotted.

After the auction ended, the 7-year US Treasury yield fell 3.8 basis points to 4.197% at the end of the session. Rupert stated, “This auction was a great success. This was the best time in a few months, and now is a great time to reap the returns.”

John Madziyire, head of Vanguard's treasury bond department, recently said that the upper limit of 10-year US Treasury yields is more likely to be around 4.5%. Looking at the other extreme, if inflation returns to a downward trajectory, he believes that the yield may fall to 3.5%, and even without a recession, it will push the Federal Reserve to cut interest rates sharply.

Because of this, Madziyire said that as long as the 10-year US Treasury yield reaches around 4.35%, which is the recent high in the range, his team will be happy to buy more US Treasury bonds. He also believes that even if the Federal Reserve doesn't cut interest rates, US Treasury bonds can only “fall this much, unless you start to take into account the effects of interest rate hikes.”

Editor/Somer