The US government bond market got off to a bad start in early July, and long-term US bonds experienced a difficult period as yield rose.
Intelligence Finance App has learned that the US government bond market got off to a bad start in early July, and long-term US bonds experienced a difficult period. Investment research company Bespoke Investment Group said in an email on Monday: 'The bond market has been declining.'
Data shows that in the past year, the total return of BofA's US Treasury Bond Index of over 10 years has fallen by 5.1%. Bespoke says: 'The annualized return in the past two years is even worse, down to 6.1%.'
The US bond market has been struggling since the Federal Reserve responded to more than two years of skyrocketing inflation. Although the inflation rate has eased significantly since its peak in June 2022, its stubbornness has made many investors uneasy in the volatile bond market.
Bespoke found that since 1978, in the past 41 months, the total return of BofA's US Treasury Bond Index of over 10 years was positive for only one month. The bank said of long-term bonds: 'This sustained weakness is unprecedented compared to history. The only similar sustained weakness was from October 1979 to October 1981.'
According to FactSet data, as of Monday afternoon, the yield on 10-year US bonds rose by about 11 basis points to about 4.48%. Bond yields and prices are inversely related.
Jim Smigiel, chief investment officer of SEI, said in an interview on Monday that he expects the yield on 10-year US bonds to rise to about 5% by the end of 2024, as inflation may remain 'stubborn'. Nevertheless, he said he expects the Fed to start cutting interest rates this year as manufacturing and other sectors of the economy are under pressure after the central bank raised interest rates to combat high inflation in the United States.
Smigiel pointed out that inflation also puts particular pressure on low-income consumers. But more broadly, 'the economy has shown extraordinary resilience' after the Fed raised interest rates. The US unemployment rate has been at a historic low, reaching 4% in May.
On Friday, the US Labor Department will release its employment report for June.
Although many traders expect the Fed to cut benchmark interest rates in September, Smigiel thinks it may be 'a little early'. After a volatile first half of 2024, he expects more 'trouble' in the US bond market for the rest of this year.
According to FactSet data, iShares US Aggregate Bond ETF (AGG.US) fell from the beginning of July on Monday, with a total return of -0.7% in the first half of 2024. The ETF fell 0.54% on Monday. Meanwhile, Vanguard Long-Term Treasury Bond ETF (VGLT.US) fell 1.68%, with a total return of -4.7% in the first half of 2024.