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The timing of interest rate cuts is expected to move back, and U.S. bond yields rise periodically.

2024-02-20

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Recently, multi-maturity U.S. bond yields have risen as higher-than-expected inflation has suppressed interest rate cut expectations. On February 13, local time, data released by the U.S. Bureau of Labor Statistics showed that the U.S. CPI increased by 3.1% year-on-year in January, higher than market expectations of 2.9%. As of February 16, the 2-year U.S. bond yield rose to 4.65%, and the 10-year U.S. bond yield rose to around 4.30%.

Analysts believe that the fluctuations in U.S. bond yields are closely related to the "warm or cold" expectations of the Federal Reserve's interest rate cut. Recently, many Federal Reserve officials have expressed a hawkish stance, which has caused the market to significantly shift back the timing of the Fed's interest rate cut, and the market expects the pace of interest rate cuts to slow down. CME data shows that market bets on the Federal Reserve’s first interest rate cut are currently postponed to June.

Looking back, since the Fed unexpectedly turned dovish at the end of last year, the market has begun to fully trade in the Fed's interest rate cuts. The 10-year U.S. bond yield once fell rapidly below the 4% mark, and U.S. bond prices experienced a substantial increase.

The TIC report recently released by the U.S. Department of the Treasury shows that in December 2023, when the "interest rate cut trade" was hot, the U.S. debt holdings of Japan, China and the United Kingdom, the top three overseas "creditors" of U.S. debt, all increased compared with November last year. They increased by US$10.7 billion, US$34.3 billion and US$37.5 billion respectively from the previous month, and the position size rose to US$1,138.2 billion, US$816.3 billion and US$753.7 billion respectively.

Since the beginning of the year, the “interest rate cut trade” has gradually shown signs of weakness. Looking ahead to the market outlook, industry insiders believe that overall U.S. inflation is still on a downward path, and the Fed's monetary policy shift will remain one of the main lines of global macroeconomics in 2024. It is expected that U.S. bond yields will have limited room for continued upward growth.

CICC believes that the direction of the decline in U.S. CPI has not changed, and the direction of interest rate cuts is relatively clear, but the timing and extent of interest rate cuts are still being debated.

"The latest inflation data are unlikely to change the Fed's interest rate cut path this year, and we expect the easing cycle to begin in May." Matthew Martin, a U.S. economist at Oxford Economics, said that the future easing cycle may be gradual , which may disappoint investors expecting a quick rate cut.

The macro research team of Zheshang Securities stated that at the current point, the 10-year U.S. bond interest rate has limited room for a further sharp rise, and may continue to fluctuate at a high level above 4%. Factors restricting the fall in interest rates include: the risk of secondary inflation in the United States during the year is still there, which may limit the space for monetary easing; the effective constraints currently faced by the U.S. finance are limited. After the subsequent budget appropriation agreement or new legislative items are reached, fiscal expansion is also possible. rebound.

The above information is provided by special analysts and is for reference only. CM Trade does not guarantee the accuracy, timeliness and completeness of the information content, so you should not place too much reliance on the information provided. CM Trade is not a company that provides financial advice, and only provides services of the nature of execution of orders. Readers are advised to seek relevant investment advice on their own. Please see our full disclaimer.

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The timing of interest rate cuts is expected to move back, and U.S. bond yields rise periodically.

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