How far will yields fall in anticipation of a rise in the price of US Treasury bonds

moomooニュース米国株 wrote a column · Dec 15, 2023 23:05

This article uses automatic translation for some of its parts

The long-term bond rate continued to rise for 3 days in the New York bond market on the 14th. The 10-year government bond yield with a surface interest rate of 4.500%, which is an indicator of long-term interest rates, ended at 3.91%, which is 0.11% lower (the price is higher) compared to the previous day. Interest rate cut observations for 2024 intensified in response to the US Federal Open Market Committee (FOMC) on the 13th. Bond buying increased further, and at one point it hit 3.88%, a low level since late July.

[Is the historical bear market for US bonds an opportunity to buy in reverse?]Since it was announced (announced 2023/10/8), US 10-year government bond yields have approached the 3.9% range, and have dropped sharply from the high level of 5.02% for the first time in 16 years set in October. Aim for investment results equivalent to the ICE US Treasury Bond Over 20 Year Index (IDCOT204) $iShares 20+ Year Treasury Bond ETF (TLT.US)$ and aim for a profit of 3 times that of US long-term government bonds (over 20 years) $Direxion Daily 20+ Year Treasury Bull 3X Shares ETF (TMF.US)$ EachAchieved an increase of over 14% and over 45%I did. Meanwhile, $Dow Jones Industrial Average (.DJI.US)$ 、 $Nasdaq Composite Index (.IXIC.US)$ 、 $S&P 500 Index (.SPX.US)$ is an increase of over 10%, over 9%, over 8%,The yen against the US dollar( $JPY/USD (JPYUSD.FX)$ )'s performanceOver 5%It was.

How far will yields fall in anticipation of a rise in the price of US Treasury bonds

Market opinions are divided as the focus is on how far the US bond rate will rise due to the US financial authorities suggesting an attitude of taking a stab at interest rate cuts.

US 10-year government bond yields fall to the first half of the 3% range next year!?
The US Federal Reserve (Fed) left policy interest rates unchanged for 3 consecutive meetings at the FOMC, which was held until the 13th. The participants' policy interest rate forecasts, which were also announced, showed that interest rate cuts of 0.25% were expected 3 times from the current level in '24, and it was clarified at the press conference that Federal Reserve Chairman Powell began discussions on when to cut interest rates. Bond buying gained momentum on the 14th due to acceptance that it supported early interest rate cut observations that had been growing in the market. According to Bloomberg, swap traders now anticipate that interest rate cuts will begin in March next year, and there is a high possibility that policy interest rates will be cut by about 140 basis points (bp, 1 bp = 0.01%) by the end of the year.

Jeffrey Gundlach, founder of Double Line CapitalSeeing that there is a high possibility that the US financial authorities will cut interest rates by a total of 2 points next year, US 10-year government bond yields will drop toward the first half of the 3% rangeI anticipate it. In an interview with CNBC, he stated, “I think the reversal of long and short interest rates in the yield curve will be resolved,” and said, “The bond exchange rate will still rise. The trend line has broken down,” he pointed out.

Mr. Gundlach maintained his forecast for a recession (recession) next year, and expressed the view that the US financial authorities would cut interest rates by a total of 2 points next year. Furthermore, he pointed out that if his own recession outlook spreads to the market, there is a possibility that monetary easing will progress further, and stated, “I think the downward trend in the economy will decline, and I think that will cause a reaction.”

The prediction that 10-year bond yields will drop to 3% next year is “ridiculous”
Bill Gross, who once served as the chief investment officer (CIO) of Pacific Investment Management (PIMCO), a major US bond management company, and was called the “bond king,” said that yields had already reached an appropriate level in the 4% range, and showered cold water on the sense of elation surrounding bond prices.

He posted on X (old Twitter) that even if interest rate cuts were implemented as expected by Mr. Guntrak,The prediction that 10-year bond yields will drop to 3% next year is “ridiculous”I scolded it. According to the “Markets Live (MLIV) Pulse” survey conducted after the FOMC, the majority of 190 respondents shared Mr. Grose's view that the decline in US bond yields with a longer term would not progress any further. The average response value for the 10-year US bond yield level as of the end of next year is 3.98%. There was also an opinion from respondents that market factoring in the number of interest rate cuts next year went too far.

Goldman Sachs Group's chief interest rate strategist Praveen Kolapati and top economist at tax consulting firm RSM Joseph Bruselas are both10-year US Treasury yields are expected to rise to around 4.5% by the end of next yearDoing it. Scott Anderson of BMO Capital MarketsThe yield on 10-year bonds at the end of '24 is expected to be around 4.2%, almost unchanged from now(Out of 40 economists and strategists surveyed by Bloomberg at the end of last year, only 3 guessed that US 10-year bond yields would rise above 4% in 2023 and end the year near current levels).

Mr. 3 says traders are now falling into the same trap as in the past two years. They underestimate the strength of the economy and the continuation of inflationary pressure. In response to signs of a slowdown in both the economy and inflation, the US bond exchange rate showed a sharp rise since mid-1980 last month. The US Federal Reserve began cutting interest rates in the first half of 24, and yields plummeted against the backdrop of observations that interest rate cuts within the same year extended to 1 point or more.

The yield curve returns to sequential yield
Guntrak and Gross are the only ones who agree on the view that the yield curve will return to sequential yield. Mr. Gross indicated that for the most part, reverse yield would be resolved through a decline in yield in the short-term zone.

Observation of interest rate cuts
On the 15th, New York Fed President Williams denied the view that the US financial authorities had begun discussions on interest rate cuts. In an interview with CNBC, the Bureau of Economic Affairs, Mr. Williams said“We have not discussed interest rate cuts at all,” he said. Thinking about interest rate cuts in March next year is “too early”I said that.

Meanwhile, according to CME's FedWatch tool, as of the 15th, the probability of a March interest rate cut is 71.97%, and the probability of a May interest rate cut is close to 95.84%.

As of the 13th, the probability of interest rate cuts in March is 49.54%, and the probability of interest rate cuts in May is close to 80.89%.

Source: Bloomberg, Moomoo, Nihon Keizai Shimbun, CME FedWatch
— MooMoo News Zeber
This article uses automatic translation for some of its parts

Disclaimer: Moomoo Technologies Inc. is providing this content for information and educational use only. Read more

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ありがとう星 : Will it continue to steadily rise?
I have a lot of anxiety

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gussan : By suggesting 3 interest rate cuts next year, I thought it would definitely drop next year, but opinions are divided even among experts

I certainly think that factoring has gone too far, but I think it's going to decline in the long run

Anyway, I'm looking forward to the loss of rights day on the 21st

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