The Zhitong Finance App learned that US Treasury investors were scrambling to withdraw from the world's largest long-term treasury bond ETF (US stock code: TLT) before the two most important interest rate decisions of the Federal Reserve and the Bank of Japan were released. As America's strong economic growth trend and expectations of interest rate cuts continue to cool down, putting pressure on US bond prices and weakening market demand for safe assets, the total value of iShares's 20-year and above long-term US Treasury bond ETF (TLT.US) fell again on Monday for eight consecutive days. This is the longest continuous decline record since its establishment in 2002. Furthermore, the ETF has experienced capital outflows for five consecutive weeks, and investors in the ETF have withdrawn a total of about 2 billion US dollars during this period.

This is in stark contrast to the optimistic situation at the end of last year, when traders invested billions of dollars in TLT because they believed this hard-hit treasury asset class would yield huge returns in the future. As US CPI inflation continues to exceed expectations and a hot labor market suggests that inflation is stubborn, the market's expectations for the Fed's interest rate cut this year continue to cool down, from the 150 basis point interest rate cut expectations at the end of last year to the current rate cut of about 75 basis points — which is in line with the December FOMC interest rate map.

Furthermore, the yield on 2-year US Treasury bonds, which are most closely linked to interest rate expectations, climbed to the highest level since the year in Monday's session, while US Treasury investors rushed to flee the world's largest long-term treasury bond ETF.

At this time, risk assets are showing signs of optimism, and major ETFs tracking the stock market and cryptocurrencies are attracting capital at an unprecedented rate. The Federal Reserve is scheduled to announce its interest rate decision this week, as well as update monetary policy expectations, including the interest rate bitmap. Currently, traders are focusing on whether America's inflationary pressure, which continues to exceed expectations, will force Fed officials to change their expectations for upcoming interest rate cuts this year. Meanwhile, expectations that the Bank of Japan will abandon its negative interest rate policy and yield curve control framework this week have heated up sharply.

Interest rate cuts are expected to continue to cool down since this year: they have shrunk from 150 basis points to 75 basis points

It is worth mentioning that as interest rate futures traders' expectations for the Fed to cut interest rates this year continue to weaken, traders once this week anticipated less than 50% chance of interest rate cuts in June. According to the latest data from the “CME Federal Reserve Watch Tool”, the probability of interest rate cuts in June is around 50.5%, which suggests that nearly half of traders chose to believe that it will be difficult for the Fed to cut interest rates in the first half of the year.

You should know that at the end of last year and the beginning of this year, the interest rate futures market once bet that the Federal Reserve would cut interest rates by as much as 150 basis points this year, and at the beginning of the year, traders generally bet on March as the time point for the first time to cut interest rates.

Dave Lutz (Dave Lutz), head of ETFs from JonesStrading, said: “People are preparing for a 'higher for longer' (that is, the Federal Reserve will maintain high interest rates for a longer period of time). Economic data continues to show that the economy is heating up, and inflation is more stubborn. As the Bank of Japan is about to end negative interest rates, this may push up Japanese treasury yields and drive the US Treasury yield upward, which means that the decline in US bond prices has not stopped.”

US Treasury yields can be described as rising across the board on Monday, and 10-year US Treasury yields reached their highest level since November last year. Furthermore, economists from the major Wall Street bank Goldman Sachs Group have become the latest Wall Street financial institution that is expected to cut interest rates less this year. Goldman Sachs Group economists have changed their predictions on the Federal Reserve's monetary policy and are expected to cut interest rates three times instead of four times this year, by 25 basis points each time.

Over the past eight trading days, the value of TLT, an ETF that has tracked long-term US bonds for 20 years, has dropped by more than 3% cumulatively. The decline is far from unprecedented, but it is worth noting that this loss occurred at the same time as continued capital outflows. This was different from the situation in the past three years. At that time, investors continued to buy ETFs related to US bonds when the stock market fell. Although the stock market crash reduced the value of the ETF by about half, they still injected 40 billion US dollars of new capital into the fund.

Eric Balchunas (Eric Balchunas), senior ETF analyst at Bloomberg Intelligence, said: “In my opinion, this is like a tactical bet of 40 billion dollars that the Fed might break certain rules, and then hope that the Fed will cut interest rates soon.” “Some people are starting to divest, and we'll probably see more money flowing out.”