On the first trading day after the Columbus Day holiday, the U.S. bond prices saw a big surge on Tuesday. The reasons for the decline in bond yields of various maturities are not difficult to find - not only did the U.S. manufacturing data released that day plunge significantly, but oil prices have also plummeted for two consecutive days...

Market data shows that U.S. bond yields fell across the board overnight, with$U.S. 2-Year Treasury Notes Yield (US2Y.BD)$a decline of 1.2 basis points to 3.956%, $U.S. 5-Year Treasury Notes Yield (US5Y.BD)$ fell by 5.2 basis points to 3.861%, $U.S. 10-Year Treasury Notes Yield (US10Y.BD)$ Fell by 7.3 basis points to 4.038%. $U.S. 30-Year Treasury Bonds Yield (US30Y.BD)$ Fell by 9.7 basis points to 4.323%.

Against the backdrop of the recent shrinking of expectations of a Fed rate cut and signs of a resurgence in US inflation, the significant rebound in US bond prices on Tuesday is clearly quite rare in recent weeks. However, from the overnight market news, it seems that the appearance of this scene in the bond market was not entirely unexpected.

In terms of macro data, data released by the New York Fed on Tuesday showed that manufacturing activity in New York State fell back into contraction territory this month, with both order and shipment indicators weakening, sharply contrasting with the strong recovery trend from the previous month.

Data shows that the US October New York Fed manufacturing index plummeted to -11.9, compared to the expected 3.6. A reading below zero indicates manufacturing activity is in contraction, and the current report is clearly below all economists' estimates surveyed.

What surprised market participants the most was actually the comparison with the data from the previous month - the September New York Fed manufacturing index reached 11.5, the highest level in 30 months. However, just one month later, this data plummeted by 23.4 points, a staggering drop for a single month.

If the latest New York Fed manufacturing index overnight indicates that the US economy, especially manufacturing, is still unstable, with downward economic pressure expected to support US bonds. Then, the continuous sharp decline in oil prices this week equally confirms the rationality of the rebound in US bonds from another perspective: the decline in energy prices may help further alleviate inflationary pressures.

Oil prices fell over 4% again on Tuesday, hitting a nearly two-week low, due to weak demand outlook. Additionally, media reports indicated that Israel will not strike Iran's nuclear and oil bases, easing concerns in the market about disrupted supply. $Brent Last Day Financial Futures(DEC4) (BZmain.US)$The price fell by $3.21, or 4.14%, settling at $74.25 per barrel. The u.s. $Crude Oil Futures(DEC4) (CLmain.US)$ fell by $3.25, or 4.4%, settling at $70.58 per barrel.

As of this week, the benchmark crude oil prices of the US and Brent have both fallen by about $5, almost erasing all the gains investors were worried would be attacked by Israel on Iranian oil facilities in retaliation for all the gains accumulated since Iran's missile attacks in early October.

"We are seeing the war premium accumulated last week being unwound," said Phil Flynn, senior analyst at Price Futures Group. "What we are seeing is not really a supply issue, but a supply-demand risk issue."

Previously, amid escalating tensions in the Middle East, investors had been increasingly worried that US inflationary pressures would rise again, and regardless of who wins the next US presidential election, there may be policies implemented to boost inflation. However, the recent decline in oil prices this week has largely eased these concerns.

Christoph Rieger, head of interest rate and credit research at Deutsche Bank, said, "Recent traders seem to have tied their trading programs to crude oil futures. Whether it is reasonable to adjust long-term inflation expectations against this backdrop remains a separate issue."

From the performance of the "global asset pricing anchor" 10-year US Treasury bond yield, the battle around the 4% integer level may be especially critical. Currently, the 10-year US Treasury bond yield has risen for four consecutive weeks, touching the highest level since July 31 last week at 4.12%.

In response, Jim Barnes, fixed income director at Bryn Mawr Trust, said, "An upward trend in yields may have reached its peak at the current level and only a small catalyst is needed to form a soft top at this level."

"You may need some type of substantial catalyst to push yields even higher, and since we don't have such a catalyst right now, yields may only fluctuate within a range until we have some evidence to show what factors might affect future actions by the Federal Reserve," Barnes said.

Editor/Rocky