The price of US bonds failed to continue the rebound of the past few trading days on Wednesday. Yields have generally risen. Investors are still weighing the possibility that the Fed will cut interest rates once or more this year, while also trying to absorb the large supply of new bonds.

According to market data, US bond yields of various matrices closed up overnight. The 2-year US Treasury yield rose 0.8 basis points to 4.847%, the 5-year US Treasury yield rose 2.8 basis points to 4.505%, the 10-year US Treasury yield rose 3.9 basis points to 4.501%, and the 30-year US Treasury yield rose 4.3 basis points to 4.644%.

This temporarily put a stop to the decline in US bond yields over the past week. On Tuesday, 10-year US Treasury yields hit their lowest point since April 10; on Friday, 2-year US Treasury yields fell to their lowest point since April 5.

In related markets, the recovery in US bond yields on Wednesday also put some pressure on US stocks. Although the Dow climbed for the sixth consecutive trading day on Wednesday and closed above 39,000 points for the first time in five weeks, other Wall Street benchmark indices performed slightly less well and their momentum stagnated. The S&P 500 closed mostly flat. Previously, it had been rising for four consecutive trading days, while the Nasdaq index fell for the second consecutive trading day.

Overall, the supply of new bonds became a major topic in the bond market during the week when there were no economic reports that had an impact on the market. On Wednesday, the US Treasury bid for 42 billion US dollars of 10-year treasury bonds at 4.483% bid interest rate, down from 4.56% last month, but higher than the pre-issuance rate of 4.473%. The bid multiplier for this bid was 2.49 compared to 2.34 previously.

Gennadiy Goldberg, head of US interest rate strategy at TD Securities in New York, said, “Despite a smaller tail, both the tail and bid multiples are generally in line with recent averages. I'd say this bid is still relatively strong.”

The bottom part refers to the difference between the bid interest rate and the pre-issue interest rate.

It is worth mentioning that the previous allocation rate for Tier 1 traders was 15.7%, the lowest since February. These traders assume the obligation to buy all treasury bonds that fail to sell in order to prevent the auction from aborting.

Prior to that, Tuesday's three-year US bond bid also received steady demand. On Thursday, the US Treasury will bid for $25 billion of 30-year bonds.

PIMCO is abandoning US bonds and switching to non-US bonds

Judging from the current situation, since the Federal Reserve's specific interest rate cut path during the year is still not completely clear, it seems that some Wall Street institutions are now also backing away from US debt and are instead seeking opportunities overseas. US bond giant PIMCO said on Wednesday that it is increasing its exposure to bonds in developed markets other than the US because sticky inflation may complicate the Fed's interest rate cut process.

The asset management giant, which has assets of 1.9 trillion US dollars, expects that the relaxation of central bank policies will support bonds in markets such as Australia, Canada, the United Kingdom, and the Eurozone, but since US economic growth may continue to be accompanied by price pressure, the company's current ratio to US fixed income assets is low.

PIMCO portfolio managers Erin Browne and Emmanuel Sharef wrote in an asset allocation outlook report, “Global economic and market prospects indicate differences in the development path of various regions and industries.”

They pointed out, “In the fixed income market, we are increasing investment in some non-US countries. These countries' loose monetary policies this year may boost local bonds.”

Due to continued strong economic and inflation data, which shattered the market's assumption that the Federal Reserve would soon shift to a less restrictive monetary policy, US bond yields, which are contrary to the price of US bonds, have soared sharply for most of this year.

Despite a rebound in US bonds this month, the benchmark 10-year US Treasury yield has risen more than 60 basis points since the beginning of the year. The interest rate futures market's bet on the Fed's interest rate cut has dropped from the annual interest rate cut of more than 150 basis points, which was set at the beginning of January, to about 44 basis points this Wednesday.

Currently, PIMCO is still optimistic about the corporate bond market as a whole, especially securitized credit assets, but it is quite bearish on high-yield bonds because it is expected that defaults may increase. Furthermore, given the signs that the US economy continues to strengthen, PIMCO is more optimistic about the US stock market than other non-US stock markets.

PIMCO said that despite this, US interest rates may remain high for longer than previously anticipated, which may eventually put pressure on economic sectors that are vulnerable to rising borrowing costs, such as commercial real estate, private credit, and artistic banking.

PIMCO said, “This means that although the factors contributing to the resilience of the US economy seem to be enduring, we cannot rule out the risk of a recession.”

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