Source: Wall Street See
The yield on the 10-year treasury notes of the USA has fallen below 4% for the first time since February, and the yield on 2-year treasury notes has hit a 14-month low. Market concerns about a recession in the USA have intensified. Swap contracts show that there is a 50% chance of the Federal Reserve cutting interest rates by 100 basis points in 2024 and a 50% chance of a 50 basis point rate cut within 2024.
The worrying economic situation in the United States has deepened market risk aversion, and US bonds have continued to rise.
On Friday, August 2nd, US bonds have risen for 7 consecutive trading days. The yield on 10-year US Treasury notes, the benchmark for the US, fell below 4% for the first time since February. It is currently reported at 3.937%.
The policy-sensitive 2-year US Treasury note yield fell to near 4.1%, a 14-month low. As of the end of July, the Bloomberg US Treasury Bond Index tracking US Treasuries had risen for three consecutive months, the longest period of monthly gains since July 2021.
Overnight, the US July ISM Manufacturing PMI was 46.8, significantly lower than the market's expected 48.8 and the previous value of 48.5 in June, with a contraction rate at its largest in eight months, exacerbating market concerns about a US economic recession. In terms of sub-indicators, employment, output, and new orders all weakened significantly.
According to swap contracts, there is a 50% chance that the Federal Reserve will cut interest rates by 100 basis points in 2024, and a 50% chance of a 50 basis point cut in 2024. This week, Federal Reserve Chairman Powell hinted that there would be a rate cut at the next meeting in September unless inflation slows down and progress stagnates.
The increasingly tense geopolitical conflicts and slowing US economic data are driving investors to safe-haven assets.
Damien McColough, Director of Fixed Income Research at Westpac Banking Corp, said sentiment in the US Treasury market was very positive. If employment data supports market expectations for rate cuts, the yield on 10-year US Treasury notes could fall further to 3.8%.
Analysts predict that job and wage growth in July will slow further, further confirming the weakness of the US labor market. Currently, investors are closely watching tonight's nonfarm payroll data release, and are concerned that if the labor market further significantly cools, the Federal Reserve may not have enough time to respond to the economic slowdown.
However, China International Capital Corporation (CICC) does not completely agree with concerns that the US economy is entering a recession. The firm believes that equating slowing down and recession without distinguishing between them can lead to overly pessimistic views on risk assets and overly optimistic views on safe-haven assets, and the word "recession" itself is not precise and lacks a unified measurement standard.
CICC stated that compared with the "soft landing" of slowing down and the "hard landing" of recession, it is necessary to look at the depth of the downturn and whether the Federal Reserve's rate cut can "save" the economy. Generally, there are two reasons for a recession: one is unexpected credit risk shocks, and the other is financing costs that are significantly higher than investment returns, resulting in sustained pressure and credit contraction. Currently, there are no clear signs of this. During the rate-cutting cycle in 2019 and earlier this year, the US manufacturing PMI was at a similar or even lower level. Rate cuts or expected rate cuts led to a gradual repair after financial conditions turned looser, and now the rapid decline in interest rates and subsequent rate cuts are having a similar easing effect. Some interest rate-sensitive demands are gradually being repaired, such as the repair of real estate at the beginning of the year.
Editor / jayden