Financial Association September 30th News (Editor Xiaoxiang) At a time when the Federal Reserve is striving for an economic soft landing, the United States may cut interest rates by a total of 100 basis points this year. U.S. Treasury bonds are currently on the rise– very likely to set the longest monthly consecutive rising record in 14 years.

According to the Bloomberg U.S. Treasury Total Return Index, U.S. Treasury bonds have already brought investors a return of 1.2% since September, likely to see the fifth consecutive month of increase, marking the longest rising trend since 2010. The index has been rising steadily since the end of April, with this year's increase expanding to 3.8%, and a rise of nearly 10% over the past 12 months.

Chief Investment Officer Chris Iggo and Chief Economist Gilles Moec of AXA Investment Managers wrote, "The bond market has especially seen strong returns. These returns reflect a positive change in central bank interest rate expectations."

The bond market's rise is benefiting from the much-anticipated interest rate cut cycle by the Federal Reserve. In recent months, traders and officials have been continuously searching for clues in economic data to determine when and to what extent the Fed should lower borrowing costs from their two-decade highs.

Last week, Federal Reserve policymakers finally delivered on their promise, cutting interest rates by 50 basis points, and expected to further reduce similar magnitudes within the year, sparking traders' expectations for further interest rate cuts in the future.

In terms of the yield on various ten-year US Treasury bonds, the two-year bond yield, which is most sensitive to the Federal Reserve's policy, has plummeted 147 basis points from its peak of 5.04% at the end of April this year to 3.57%. At the longer end of the curve, the yield on the 10-year US Treasury bond has also dropped by about 95 basis points since the end of April, falling to 3.75% last Friday, close to the lowest point in 2024.

This change helped a significant part of the US Treasury yield curve return to normal at the end of September - the yield on US two-year Treasury bonds fell below the 10-year US Treasury yield again, as traders placed bets on a massive rate cut this month. Last week, the steepness of the US Treasury yield curve reached its highest level since mid-2022.

Nevertheless, uncertainty remains about the future size of Federal Reserve interest rate cuts, and the current rebound in US Treasury bonds also faces the test of excessively crowded bullish positions in the market.

Axa's Iggo and Moec have warned that given the current market pricing aligns with the terminal interest rate level of this cycle as believed by most observers, the gains in fixed income assets will moderate by the end of the year.

Citi strategist Edward Acton also wrote in a report that month-end and quarter-end pressures, as well as the looming US elections, have increased the anxiety of portfolio managers as they see the risk of trading volatility. Moreover, according to two researchers at the New York Fed, the last day of each month has become the busiest trading period for US Treasuries.

From a news perspective, as the calendar flips from September to October, the global financial markets will once again face many key risk events in the coming week.

Among them, the Federal Reserve Chairman will discuss the US economic outlook at the National Association for Business Economics conference on Monday local time (1 a.m. on Tuesday Beijing time), and his comments are likely to touch on views on current monetary policy, undoubtedly worth close attention from investors.

The September non-farm payroll report to be released this Friday is also expected to be the focus of traders. Before the non-farm data is released, the market this week will also see the release of the latest US job vacancy data, the ADP Small Business Employment Report, and key labor market indicators such as the ISM Manufacturing and Service Employment Index.

Editor/ping