Source: Bloomberg, Nikkei

Why did long-term US bonds plummet?
What caused the sharp rise in US bond yields? It has been a mystery until now, with little that can be perfectly explained by fundamentals. Former senior official of the New York Fed, current Chief Global Economist at PGIM Fixed Income, Dariush Singh, commented on this situation as follows.

Has the US long-term bond hit bottom?
Since the Federal Reserve Board (FRB) suggested higher and longer interest rates, the US bond market has been in turmoil. On October 6, Bank of America Global Research stated in a report that US long-term bonds are signaling the arrival of a historic bear market in the US bond market, with a 50% decline from the peak.Historical bear market arrival.The decline in long-term US bonds is beginning to rival the worst market crash in US history. Since peaking in March 2020, the price of 10-year US bonds has fallen by 46%. The decline in 30-year US bonds is even more severe, approaching a 53% sharp drop comparable to the 57% crash in US stocks during the financial crisis.

Barclays analyst Ajay Rajadiaksha and his team stated that global bonds will continue to decline as long as the stock market remains weak and the attractiveness of bond assets does not recover. These are the things thatThe fate of the bond market is influenced by the stock market.This means that although the S&P 500 stock index has fallen by about 5% in the past 3 months, this is considered insufficient to lead the bond market higher.

"The most certain way to stop the sharp rise in long-term bond yields is for the FRB to deny a rate hike later this year and suggest a positive attitude towards shortening the quantitative tightening (QT) period," Barclays analysts state in response to views like these.The possibility of the FRB easing QT is lowand selling of US bonds is likely to continue. Furthermore,the increase in US government debt supply due to deficit expansion is also leading to a rise in term premia.Also contributing to the rise in the term premium.

On the other hand, according to the report from Bank of America corp,The sharp drop in bonds has not stopped investors from entering the US bond market.Based on EPFR data, although bond funds saw an outflow of $2.5 billion for the week ending on October 4 (Wednesday), $4.6 billion flowed into short-term US government bonds, resulting in 34 consecutive weeks of inflow.Regarding the inflow of funds into short-term government bonds, Michael Hartnett, a prominent strategic analyst at Bank of America (bofa), stated that "there is no surrender here."It happened.

Future Outlook
alsoIf the economic downturn reflected in the bond market and the stock market truly transforms into 'economic data', bonds will experience a sharp rebound.and pointed out in a report that it is likely to be the best-performing asset class in the first half of 2024. Mr. Hartnett has maintained a bearish view on U.S. stocks this year, citing the possibility of a hard landing due to rising interest rates.

Nick Timiraos, Chief Economics Specialist at The Wall Street Journal, warned that the surge in long-term U.S. bond yields could shatter hopes of a soft landing, sharply increase borrowing costs, and abruptly slow economic growth, thus heightening the risk of a major market crash. As a result, expectations for additional rate hikes by the Federal Reserve Board this year may weaken.

Interest rate hike observations
Following the release of the significantly higher-than-expected non-farm payrolls for September in the U.S. on Friday, the probability of rate hikes by the end of the year is rising in the interest rate swap market.and observations of a rate cut commencing.Scheduled to be postponed from July to September next year.。