As investors are still digesting the impact that Trump's election victory may have on the economy and the Federal Reserve's policy, the selling of US treasury bond bonds intensified, and the yield of US treasury bond continued to soar on Monday.
Among them, the yield of 30-year treasury bond once rose 6 basis points to 4.68%, the highest level since the end of May. The 10-year yield rose by about 3 basis points to 4.47%. Previously, the yield of several European treasury bond also experienced similar increases.
Long term US bond yields have surged, partly due to supply side pressures driving up yields. Morgan Stanley announced the issuance of 31 year bonds, and it is expected that a large number of other companies will issue investment grade bonds on Monday. In addition, the undecided candidate for the next US Treasury Secretary is also putting pressure on the bond market.
Bank of America Merrill Lynch stated in its research report last Friday that when the 10-year US Treasury yield exceeds 5%, investors often shift from the stock market to the bond market, limiting the rise of US stocks.
Has US debt become a hot commodity again?
In fact, bond yields have been falling for most of the past two months due to strong economic data that has dampened traders' expectations of a Fed rate cut.
As of the close of last Friday, the return rate of Bloomberg US treasury bond bond yield index so far this year has dropped from the peak of 4.6% on September 17 to about 0.7%, and US bonds have suffered a series of heavy selling. September 17th was the day before the Federal Reserve cut interest rates for the first time since 2020.
Since Trump's victory on November 5th, the sell-off of US Treasury bonds has largely continued, as Trump's election as president has heightened concerns about how his promises to raise tariffs, lower taxes, and relax regulations will affect interest rates.
It is worth noting that on Monday local time, nine companies issued new highly rated corporate bonds, four of which included 30-year bonds, which may lead to hedging related capital flows in the US treasury bond bond and interest rate swap markets.
In addition, Trump's uncertainty about the selection of the US Treasury Secretary 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 the 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, said, "The market generally acknowledges that economic growth is strong, inflation has not been completely eliminated, budget deficits may widen, and there is almost no reason for long-term bonds to fall
For the strategists of JPMorgan Chase, the yield of short-term US treasury bond bonds has climbed to an attractive level. Last Friday, the strategists led by Jay Barry suggested their clients to buy more two-year treasury bond bonds, saying that as long as the Federal Reserve does not raise interest rates, the risk of further selling of short-term treasury bond will be controlled.
Currently, interest rate swaps show that traders believe the likelihood of the Federal Reserve keeping interest rates unchanged or cutting them by another 25 basis points at its policy meeting ending on December 18th is almost identical. Federal Reserve Chairman Powell stated last week that the Fed is not in a "hurry" to lower interest rates.
Foreign holdings of US Treasury bonds hit a new high in September, with China and Japan continuing to reduce their holdings
With the overall strength of US bond prices in September, the overall size of US treasury bond bonds held by foreign investors further hit a record high.
On Monday local time, the US Treasury Department released the September 2024 International Capital Flows Report (TIC). The report shows that the size of US treasury bond bonds held by foreign investors in September further increased to US $8.6729 trillion from US $85034 trillion in August, a record high.
Among them, Japan's position in US treasury bond bonds in September decreased by $5.9 billion from August to $1.1233 trillion. This is also 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 bond. In the past few months, in order to support the yen, Japan has continuously reduced its holdings of US bonds to intervene in the foreign exchange market.
At the same time, China, the second largest overseas "creditor" of the United States, continued to stand in the camp of reducing its holdings of US bonds in September. The report shows that China's US Treasury holdings in September decreased by $2.6 billion compared to the previous month, and the total holdings decreased to $772 billion. This is also 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 bonds, the latest TIC report from the US Treasury Department shows that the eight major "creditors" ranked after the two countries - the UK, Cayman Islands, Luxembourg, Canada, Belgium, France, Ireland, and Switzerland - all chose to increase their holdings of US bonds in September without exception.