Source: Glonui.

As investors continue to digest the potential impact of Trump's election victory on the economy and Federal Reserve policy, the sale of US Treasury bonds intensified on Monday, with bond yields continuing to soar.

Among them, the yield on 30-year Treasury bonds temporarily rose by 6 basis points to 4.68%, the highest level since the end of May. The 10-year yield increased by about 3 basis points to 4.47%, while several European government bond yields also experienced similar increases.

The long-term US Treasury yields surged, partly due to supply-side pressures pushing yields higher. Morgan Stanley announced the issuance of 31-year bonds, and it is expected that many other companies will issue investment-grade bonds on Monday. In addition, the uncertainty regarding the next US Treasury Secretary's appointment is also putting pressure on the bond market.

Bank of America Merrill Lynch stated in a research report last Friday that when the 10-year US Treasury yield exceeds 5%, investors tend to shift from the stock market to the bond market, limiting the rise of US stocks.

Is US Treasury bonds becoming the "hot commodity" again?

In fact, due to strong economic data leading traders to suppress expectations of Federal Reserve rate cuts, bonds have been declining for most of the past two months.

As of last Friday's close, the Bloomberg US Treasury Yield Index's ROI for the year has dropped from a peak of 4.6% on September 17 to around 0.7%, with US Treasury bonds facing large-scale sell-offs. September 17 was the day before the Federal Reserve's first rate cut since 2020.

Since Trump's victory on November 5, the sell-off of US bonds has largely continued, as his election has heightened concerns over how his promises to raise tariffs, lower taxes, and ease regulations will affect interest rates.

Notably, on local time Monday, nine companies issued new high-rated corporate bonds, including four issues with 30-year bonds, which could lead to hedge-related funding flows in the US Treasury and interest rate swap markets.

Additionally, uncertainty regarding Trump's pick for the US Secretary of Treasury has put pressure on the bond market. According to insiders, Trump's transition team is considering appointing former Federal Reserve official Kevin Warsh as Secretary of Treasury and hedge fund manager Scott Bessent as director of the White House National Economic Council.

However, Michael Contopoulos, head of fixed income at Richard Bernstein Advisors LLC, stated: "The market generally acknowledges that economic growth is strong, inflation has not been fully eliminated, the budget deficit may widen, and there is almost no reason for long bonds to decline."

For jpmorgan's strategists, the yield on short-term usa treasury bonds has climbed to a sufficiently attractive level. Last Friday, strategists led by Jay Barry suggested their clients go long on two-year treasury bonds, stating that as long as the Federal Reserve does not raise rates again, the risk of further selling of short-term treasury bonds will be contained.

Currently, interest rate swaps indicate that traders believe the likelihood of the Federal Reserve maintaining interest rates or cutting them by another 25 basis points at the policy meeting ending on December 18 is nearly the same. Fed Chairman Powell stated last week that the Fed is not 'eager' to cut rates.

In September, foreign holdings of US bonds reached a new high, as both japan and china continued to reduce their holdings.

As US bond prices strengthened overall in September, the scale of US Treasury bonds held by foreign investors further set a new historical high.

On Monday local time, the usa Treasury Department released the International Capital Flow Report (TIC) for September 2024. The report shows that the scale of us treasury bonds held by foreign investors rose from 8.5034 trillion dollars in August to 8.6729 trillion dollars in September, setting a new historical high.

Among them, japan's holdings of us treasury bonds in September decreased by 5.9 billion dollars compared to August, reaching 1.1233 trillion dollars. This marks the fifth time japan has reduced its holdings of us treasury bonds in the past six months.

Since June 2019, japan has been the largest overseas holder of us treasury bonds. However, in recent months, to support the yen, japan has been continuously reducing its holdings of us treasury bonds.

At the same time, china, the second-largest overseas "creditor" of the usa, also continued to reduce its holdings of us treasury bonds in September. The report shows that china's holdings of us treasury bonds decreased by 2.6 billion dollars in September, bringing the total holdings down to 772 billion dollars. This also marks the third consecutive month that china has reduced its holdings of us treasury bonds.

However, while both china and japan reduced their holdings of us treasury bonds, the latest TIC report from the usa Treasury Department shows that the eight major "creditors" ranked after the two countries – the united kingdom, the cayman islands, luxembourg, canada, belgium, france, ireland, and swiss franc – all chose to increase their holdings of us treasury bonds in September.

Editor / jayden