The Crucial Factor Behind US Bond Prices: The Supply and Demand Relationship

The yield on 10-year US Treasury bonds has recently reached a very high level.

A strong labor market has led to an increase in the expected interest rate hike in the US, which is one reason for the increase in bond yields. In September, the US added 336,000 non-farm jobs, almost twice the Wall Street expectations.

Today, I want to share with you another reason for the rise in yields, that is, while the supply of US Treasury bonds continues to increase, the demand for bond purchases is constantly decreasing. This oversupply has caused the price of US Treasury bonds to continue to fall, leading to a continuous increase in bond yields.

The US government is continually issuing bonds. The US Department of the Treasury unexpectedly announced that it will borrow about $1 trillion in debt in the third quarter of this year, 25 billion more than Wall Street expected. As of September, net issuance of Treasury bonds has exceeded $1.76 trillion, higher than any year in the past ten years except for 2020.

However, the current market demand for US bonds is relatively limited, and major investors such as the Fed, overseas investors, and domestic investors have low willingness to hold bonds. Central banks around the world are reducing their holdings of US bonds, such as Japan. The Fed has stopped purchasing and even reduced its holdings of US bonds, and ordinary investors have little interest.