On June 20th, Caijing News (Editor Xiaoxiang) reported that after experiencing a roller-coaster market in the first half of this year, US bond investors seem to have returned to the starting point... Product structure, operating income of 10-30 billion yuan products were 401/1288/60 million yuan, respectively.

A Bloomberg index that measures the total return of the US Treasury market shows that as the end of the first half of the year approaches, the index's decline in 2024 is only 0.1%, while in April, the year-to-date decline in US Treasury bonds once reached as high as 3.4%.

It can be said that the US bond bulls have regained the lost ground in the first four months of this year in just nearly two months. The core reason for the recent rebound in bond prices is obviously not difficult to find-Investors bet that the momentum of the US economy and deflation will persuade the Federal Reserve to cut interest rates earlier and more than originally expected, thereby effectively suppressing the rise in bond yields.

"We have seen the top of (US bonds) yield," said Stephen Miller, a Sydney GSFM investment strategist with forty years of market experience," and bonds are now back where they should be in a multi-asset investment portfolio."

In the first four months of this year, panicked bond investors sold bonds for fear that US interest rates would rise in the long run. The two-year Treasury bond yield, which is particularly sensitive to interest rate policy, soared to over 5% in April. However, the yield has now fallen back to around 4.70%, as a series of recent data, including inflation and retail sales, show that the US's economic performance may soon cool down to a level sufficient to lower borrowing costs.

Although some Federal Reserve officials have said in the past week that they need more evidence to prove that inflationary pressure has indeed eased before they really cut interest rates, the market has taken a step ahead. The latest pricing of the overnight index swap market shows that traders currently believe that the Federal Reserve will cut interest rates twice this year.

Koegler, a member of the Federal Reserve Board, said earlier this week that if economic conditions develop as expected, it could be appropriate for the Federal Reserve to cut interest rates "later this year." The newly appointed president of the St. Louis Federal Reserve, Musalem, said in his first important policy speech that it may take "several quarters" for data to support lower interest rates.

The high volatility of the bond market is expected to ease.

For the future direction of the US bond market, Rachana Mehta, the joint head of fixed income at Maybank Asset Management, believes that the 10-year US Treasury bond yield is expected to fluctuate within a range of 4.2% to 4.5%, and when it approaches the high point of the range, it will be a good time to buy.

Mehta said in an interview," We hope that the volatility of the bond market in the past has faded away with the release of recent US data. You can continue to hold the 10-year US Treasury bond for a long period of time around 4.4% to 4.5%."

It is worth mentioning that as the Federal Reserve and investors' views on this year's expected interest rate cuts begin to converge, the volatility of the US Treasury market, with a scale of up to 27 trillion US dollars, has also retreated from its recent highs. The ICE BofA MOVE index compiled by Bank of America-an indicator that tracks the expected volatility of US Treasury bonds based on options-is currently hovering around 98, lower than the high of 121 set in April.

Western Asset Management portfolio manager Desmond Fu said," The most important thing here is that the price difference between market expectations and Fed pricing has narrowed. This effectively reduces volatility."

Of course, not everyone currently believes that US Treasuries have upward momentum. Barclays Bank strategists recommended earlier this month to return to shorting 10-year Treasury bonds, as they bet that US economic activity will rebound after two consecutive data weakers than expected.

Padhraic Garvey, Global Head of Debt and Interest Rate Strategy at ING Financial Markets, believes that the market will focus on the PCE price index, which is the Federal Reserve's favorite inflation indicator, published on June 28. It is expected that the index will show further easing of price pressure in May.

According to the median estimate of economists surveyed by the media, the annual rate of core PCE price index in May is expected to drop to 2.6%, the lowest since 2021.

"This will make the basis for the September rate cut more solid," Garvey and his colleagues wrote in a report." We continue to see 4% as a feasible target for the yield on 10-year Treasury bonds."

Editor/Somer