The US September consumer price index (CPI) released in mid-month increased 2.4% year-on-year, higher than market expectations, causing market concerns that the progress in curbing inflation has stagnated, affecting the Fed's subsequent pace of rate cuts.
As the recent data released in the US has been better than expected, indicating that the economy remains strong, and several Federal Reserve (Fed) officials believe that future rate cuts should be temporarily slowed, the market's expectations for the Fed to make significant rate cuts have gradually cooled, and this situation is also directly reflected in the US Treasury market, which is closely related to interest rates.
In addition, according to CME Fedwatch data, the market expects the probability of the Fed not cutting rates in November has risen to 13%, and the probability of a 25 basis point rate cut has fallen to 87%.
10 year US Treasury yield reaches new 3-month high
Against this backdrop, according to MacroMicro datashows, the 10-year US Treasury yield soared to 4.21% today (10th), the highest level in the past 3 months.
But we know that the rise in US Treasury yields means a drop in bond prices. According to a report in Commercial Times, before the Federal Reserve officially launched the rate cut cycle in September, long-term US Treasuries had already anticipated the positive news and surged in advance. After the official rate cut, US Treasury prices plummeted instead, and major US Treasury ETFs in Taiwan plunged after the positive news was exhausted, turning the originally sweet extra credit question into a deadly one.
It can only be said that US Treasury prices had already reflected the rate cut in advance before the Federal Reserve announced it, and among them, Yuanta US Treasury 20 Leveraged 2X, Cathay 20-Year US Treasury Leveraged 2X had fallen below the annual line a few days ago, with the pattern turning bearish, and yesterday more US Treasury ETFs also fell below the annual line, including Yuanta 20-Year US Treasury, Cathay 20-Year US Treasury, CTBC 20-Year US Treasury, Kaigi 25+ US Treasuries, Uni-President 20-Year US Treasury, Fubon 20-Year US Treasury, KGI 25-Year US Treasury, and Yung-Feng 20-Year US Treasury.
Expert: US Treasuries have limited downside
In addition, according to a report in Yahoo Finance, Li Yongnian, deputy general manager of Enlighten Investment Consulting, said in an interview that the decline in US Treasury prices, in addition to the market's expectation that the Fed's rate cuts will slow down, causing US Treasury yields to rise, is also due to "concerns about Trump's re-election". Li Yongnian said:
As the possibility of Trump's re-election becomes higher and higher, the market is worried that Trump's usual high-inflation policies, whether it's massive spending or raising import tariffs on other countries, will stoke US inflation. The market is worried that if he is elected, "interest rates may not come down". This is the main reason for the rise in yields.
However, regarding the current plunge in US Treasuries, will they continue to fall or have they already fallen enough? Li Yongnian believes that the US Treasury market has already become a bit oversold, and the room for further decline is limited:
In the future, no matter whether Trump or Kamala Harris is elected as the US president, their policies both aim to cut interest rates, so regardless of who wins, at least in the initial period after taking office, the US Treasury yield is unlikely to rise much further, the probability is not that high, so bond investors don't need to worry too much.
Community urgently calls to save US Treasuries
In the face of the collapse of the US Treasury market, Taiwanese bond investors are also frantically complaining on social media platforms. On the PTT forum, many netizens commented that "buying US Treasuries is no better than leaving them alone and not buying them, and still making money", "you are greedy for the interest of the US, and the US is greedy for your principal", "prepare to leave the debt to your descendants", "if I buy US Treasuries again, I'll be a pig".
However, some netizens also said that US Treasuries have already approached the bottom, and it's time to start entering the market, "the bad news has been priced in now, US Treasuries have already fallen to pre-rate cut prices", "the panic sentiment has emerged, the entry signal has appeared!", "buy on the dips, start buying".
