① In the past two weeks, the US Treasury yield curve has continued its bear steepening trend, with the 10Y-2Y US Treasury yield spread widening by at least 10 basis points. ② QDII USD bond funds can invest in various foreign currency bonds including USD bonds, with the investment ratio in US Treasury assets usually not less than 80% of non-Cash / Money Market fund assets, mainly focusing on active investment.
According to the Financial Associated Press on January 15 (Editor: Yang Bin), as the market's expectations for a slowdown in the Federal Reserve's interest rate cuts become stronger, US Treasury rates have recently surged. The yield on the 10-year US Treasury has risen to 4.8%. Analysts point out that if the December CPI data exceeds expectations again, the 10-year US Treasury yield may challenge the previous high of 5%, but currently, the 10-year US Treasury already has considerable allocation value.
The rise in US Treasury rates is beneficial for the sales of QDII USD bond funds. QDII USD bond funds are a major channel for domestic investors to purchase USD bonds. According to relevant statistics from brokerages' research reports, the highest return of QDII USD bond funds in 2024 exceeds 5%. The Financial Associated Press has learned that such fund products have been selling well recently, with some being in a state of restricting large purchases.
The 10-year US Treasury yield may challenge 5% in the short term.
Recently, the minutes from the Federal Reserve meeting and non-farm payroll data significantly exceeding expectations have suggested that the pace of interest rate cuts will slow down. In the December FOMC minutes published on January 7, Federal Reserve officials expressed concerns about inflation data exceeding expectations and the potential inflation impact from changes in trade and immigration policies since Trump's administration.
On January 10, the US non-farm employment data for December 2024 was released. The non-farm jobs added in December in the USA was 0.256 million, the largest increase in nearly nine months, significantly exceeding market expectations of 0.165 million. Following the release of this non-farm data, the market's expectation for the next rate cut by the Federal Reserve has been pushed back to October.
As a result, US Treasury rates have surged recently, reaching 4.8% as of the 14th for the 10-year US Treasury yield. Compared to short-term US Treasuries, the yields on 10-year US Treasuries have risen even more. The US Treasury yield curve has continued its bear steepening trend in the past two weeks, with the 10Y-2Y US Treasury yield spread widening by at least 10 basis points.
Figure: US Treasury yield trend.
(Source: Wind Data, organized by Financial Alliance)
Guosen's overseas research team believes that US bond yields continue to strengthen, with short-term uncertainties remaining. As US economic data continues to exceed expectations, the anticipation for interest rate cuts this year has narrowed to once. The expectation of a soft landing for the economy has strengthened again, and inflation expectations have risen to nearly two-year highs. If the CPI data in December 2024 exceeds expectations again, interest rates could challenge the previous high of 5%.
However, from a配置 perspective, the approximately 4.8% yield on the 10-Year T-Note already offers substantial allocation value. If the inflation data meets or falls short of market expectations of 2.9%, combined with the likelihood of a rate hike by the Bank of Japan this month, there is also large downward adjustment space for long-end interest rates and the USD.
QDII USD bond funds are in high demand, and some are under substantial investment limits.
Currently, domestic investors purchase USD bonds and related products mainly through subscribing to USD bond QDII funds, signing up for Hong Kong mutual recognition funds, purchasing USD bond funds through cross-border wealth management channels, exchanging currency at banks for USD financial products, or directly investing in US bond-like Assets, many of which have limits on investment amounts.
HTSC's Fixed Income research team pointed out in related Research Reports that investors with a low-risk preference seeking absolute returns can buy USD money market funds through banks or cross-border wealth management channels. For investors with substantial investment demands, Hong Kong mutual recognition funds and cross-border wealth management options can be chosen. For higher risk-tolerant investors, investing in long-duration bond funds, overseas REITs, and Gold-like US bond Assets can offer higher yield elasticity.
Taking QDII funds as an example, by the end of 2024, there will be 14 domestic QDII USD bond funds, with a total scale of approximately over 20 billion yuan. The top three funds in scale are Southern Asia USD Bonds, Silver Hua USD Bond Selected, and Huitianfu Selected USD Bonds. QDII USD bond funds can invest in various foreign currency bonds, including USD bonds, and the investment proportion in US bond Assets usually accounts for no less than 80% of non-Cash funds. They mainly focus on active investment.
Figure: QDII USD Bond Funds
(Source: HTSC, data as of the end of 2024, compiled by Financial Associated Press)
According to the returns in 2024, HTSC's Research Reports statistics show that all 13 QDII USD bond funds achieved positive returns, with the Everbright short-term USD bond returning 5.25% in 2024, and the Franklin Asian Income yielding 4.82% in 2024.
Public data shows that the net value fluctuations of QDII funds have intensified recently, with some fund companies issuing premium risk warnings and restricting large subscriptions. For instance, the Franklin Asian Income (QDII) will restrict daily large subscriptions to $1,000 in December 2024, while the Penghua Global Short and Medium Term Bond USD Cash (QDII) will limit daily large subscriptions to $10,000.
Industry insiders have revealed that there is a supply shortage of QDII products aimed at high-net-worth clients, with some quotas already exhausted. However, the industry reminds that overseas monetary policies carry significant uncertainties, and investors should pay attention to the exchange rate risks associated with QDII fund products.
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