After a sharp decline last week, US Treasury yields finally rebounded on Monday. Investors consolidated their positions ahead of a series of economic data releases and speeches by Federal Reserve officials, which will provide more clues on the timing of the first interest rate cut this year. At the same time, the issuance of a large number of new bonds by US companies also put pressure on the US government bond market at the beginning of the week.
On June 18th, Caijing News (Editor Xiaoxiang) reported that after a sharp decline in US bond yields last week, they finally rebounded on Monday. Investors stabilized their positions ahead of a series of economic data and speeches by Fed officials, which will provide more clues for the timing of the first interest rate cut this year. At the same time, the issuance of a large number of new bonds by US companies has also put pressure on the US Treasury market early this week.
Market data shows that various term US bond yields collectively rose overnight. Among them, the 2-year US bond yield rose by 5.7 basis points to 4.774%, the 5-year US bond yield rose by 6.3 basis points to 4.309%, the 10-year US bond yield rose by 5.7 basis points to 4.286%, and the 30-year US bond yield rose by 5.2 basis points to 4.408%.
Some industry insiders have stated that after the 2-year to 30-year US bond yields fell for four consecutive days last week, they were prepared for a rebound at the beginning of this week. Due to lower-than-expected US inflation data and more signs of cooling in the labor market, the 10-year US bond yield, known as the "anchor of global asset pricing," fell sharply by 21 basis points last week, setting the largest single-week decline since mid-December last year.
According to the latest pricing of the federal fund interest rate futures market, traders currently expect that the possibility of a rate cut by the Fed in September exceeds 60%, and a rate cut of about 45 basis points is expected for the year.
"After experiencing one of the largest and most aggressive interest rate hikes in the world, the market seems to be beginning to turn towards rate cuts," wrote AmeriVet Securities' US interest rate manager Gregory Faranello in a research report. "But this will not be a straight line of movement, we have done some incredible work at higher interest rate levels."
Philadelphia Fed President Harker stated on Monday that based on his current economic forecasts, he believes that implementing a rate cut before the end of 2024 would be appropriate. Harker holds a cautious attitude towards the economic outlook, and predicts that the US economic growth will slow down, but it will still exceed the long-term trend level. At the same time, he predicts that the unemployment rate will rise moderately.
The prices of US Treasuries were under pressure at the beginning of this week, and a large number of US companies in need of bond issuance took advantage of the opportunity to issue new bonds. Currently, 13 companies are in line waiting for bond issuance. Last week was the slowest week for new corporate bond sales this year, as many companies chose to wait and see due to the impact of inflation data and the Fed interest rate decision.
Some analysts also stated that the later US Treasury supply this week may be another factor leading to price declines and yield increases. On Tuesday and Thursday this week, the US Treasury will auction $13 billion in 20-year bonds and $21 billion in 5-year inflation-indexed bonds (TIP), respectively.
This week, the US financial markets will close for the June holiday on Wednesday, which means that the auction of 20-year bonds, which usually takes place on Wednesday, has been moved up to Tuesday. Before the auction, market participants usually sell Treasury bills and then look for opportunities to buy back at lower prices.
Looking ahead, against the backdrop of limited key economic data in the US this week, the importance of retail sales data, known as the "terror data" of the US, may be particularly pronounced. Some economists believe that the US retail sales data for May, which will be released on Tuesday, will be a key indicator of consumer performance under high interest rates. After cooling unexpectedly last month, changes in consumer spending are not only important indicators of the economy but will also become important references for price trends.
Currently, industry surveys predict that US retail sales in May will rebound by 0.2% from April's 0%.
Consumption has always been the largest engine of the US economy. Data shows that the annualized growth rate of consumer spending in the first quarter was 2.5%, contributing to nearly 70% of the GDP growth rate. However, the monthly growth rate of US retail sales in April fell from 0.3% to 0%, and core retail sales excluding automobiles, gasoline, building materials, and food services also fell by 0.3% month-on-month, which once made people worried about the performance of the US economy at the beginning of the second quarter.
Of course, one benefit of the retail slowdown is that it may help reduce inflation, as a decrease in consumer demand will force companies to freeze or even reduce prices, helping the Fed reach its 2% inflation target.
Stan Shipley, Managing Director and Fixed-Income Strategist of Evercore ISI, stated, "Even though the US bond yields have rebounded at the beginning of this week, overall, the increase is expected to be limited, and this week's data on the real estate market, retail sales, and initial jobless claims will be closely watched."
"Overall, I believe that data on retail sales and the real estate market will be better than expected, rebounding from March and April's data. The market will also closely watch initial jobless claims because last week's data has surged. So the question is: Is the labor market really slowing down?" Shipley asked.
Editor / jayden