Strengthening of Treasury Market Accelerates Following Evidence of Declining Expansion

On Wednesday, the rally in U.S. Treasuries gained new momentum as the Bank of Japan maintained its cap on bond yields, while new data indicated a further slowdown in U.S. inflation and economic activity. The yield on the benchmark 10-year U.S. Treasury note was recorded at 3.374% by Tradeweb, a decrease from 3.534% on Tuesday, marking its lowest close since early September. The drop in yields, which occurs when bond prices rise, was initially triggered by the BOJ’s announcement to continue with large-scale bond purchases to keep the 10-year Japanese government-bond yield at 0.5%. This decision to keep the policy unchanged boosted government bonds globally as it reduced speculation that Japanese yields could continue to rise.

10 year us treasury bond

Favorable U.S. economic data also played a role in the rise of U.S. Treasuries, despite affecting stocks negatively. Reports on retail sales, industrial production, and supplier prices supported the idea of decelerating economic growth and easing inflation pressures. Only the index of U.S. home builders’ confidence increased slightly, but it still showed that more builders viewed conditions as poor.

Priya Misra, head of global rates strategy at TD Securities in New York, stated, “Today is very much [about] slowing growth.” She noted that the decline in yields was particularly significant among Treasuries that mature in about five years, indicating that investors believe the Federal Reserve will stop raising interest rates earlier and cut them more than previously anticipated due to increasing bets of an economic recession.

The recent movements in Treasury yields have been a dramatic reversal since the start of the year. In 2022, Treasury yields steadily increased, causing a negative impact on other assets such as stocks and leading to the worst returns for bond investors since records began in the 1970s. The 10-year yield reached as high as 4.2% in November. However, yields started to drop in the first trading session of 2023 and have fallen further than they rose to start last year.

At the start of the year, many individual and institutional investors were optimistic about bonds, drawn in by the highest yields in over a decade. Further evidence of slowing inflation and soft economic data has only reinforced their confidence that the threat of rising interest rates has diminished, allowing them to embrace these yields with greater comfort.

The Federal Reserve’s officials have sent conflicting signals to investors. While they have indicated that the days of raising interest rates by 0.75% at each meeting are over, they have also been hesitant to express too much optimism about inflation and have repeatedly indicated that they do not anticipate cutting rates this year.

James Bullard, the President of the Federal Reserve Bank of St. Louis, stated on Wednesday that a 0.5% increase in rates at the Fed’s Jan 31-Feb 1 meeting would be appropriate. He said that he expects the Fed’s benchmark federal-funds rate to be between 5.25% and 5.5% by the end of the year, which is much higher than market-based rate expectations.

However, many investors are convinced that economic data will eventually force the Fed to change its stance. According to Barbara Reinhard, head of asset allocation at Voya Investment Management, the economy is currently at a “tipping point” where consumers’ real incomes are negative and they are no longer able to purchase goods freely. Reinhard and her team added Treasurys to their multi-asset portfolios last year and have also shifted into stocks that can better withstand the recession they anticipate in late 2023 or early 2024.

Reinhard believes that although the Fed is concerned that a tight labor market may keep inflation above its 2% target despite slowing growth, inflation has already decreased and will continue to decline during a recession.

Wednesday’s bond gains and stock losses are consistent with a growing perspective on Wall Street. Classic portfolios consisting of 60% stocks and 40% bonds suffered their worst returns in decades last year as inflation and rising rate expectations impacted both assets. This year, many believe that bonds will once again serve as an effective hedge against declining stocks due to increased concerns about economic growth.

Author:Com21.com,This article is an original creation by Com21.com. If you wish to repost or share, please include an attribution to the source and provide a link to the original article.Post Link:https://www.com21.com/strengthening-of-treasury-market-accelerates-following-evidence-of-declining-expansion.html

Like (1)
Previous February 6, 2023 9:42 am
Next February 6, 2023 10:25 am

Related Posts

  • Factors Influencing the Federal Reserve’s Decision to Cut Interest Rates

    The Federal Reserve, also known as the Fed, is the central bank of the United States. One of its key responsibilities is to control monetary policy, which includes setting interest rates. The decision to cut interest rates is not taken lightly and is based on a variety of factors. Here are the key conditions for the Fed to decide to cut interest rates. Slow economic growth: If the economy is growing at a slow pace, the Fed may cut interest rates to stimulate economic growth. Low interest rates make it…

    February 5, 2023
    0
  • Could Increasing The Federal Reserve’s Inflation Target Help Reduce Government Debt? Exploring The Pros And Cons

    For many years, the Federal Reserve has kept its inflation target at 2%. But with growing government debt and an aging population, some economists are arguing that this target should be increased. In this blog article, we will explore the potential pros and cons of increasing the Federal Reserve’s inflation target, and how it could affect government debt levels. Introduction For years, the Federal Reserve has been criticized for not doing enough to spur economic growth and inflation. Some have argued that the Fed should raise its inflation target in…

    January 28, 2023
    0
  • Falling off the Rails: A Look into the Troubled State of US Rail Infrastructure and Its Impact on Transportation

    The infrastructure in the United States, particularly its railways and highways, has been a topic of concern for many years. The country’s transportation system is outdated and has suffered from a lack of investment, leading to frequent accidents and delays. The issue is particularly noticeable in the country’s railways, which have been plagued with derailments and other safety concerns. In this article, we will explore the reasons behind America’s poor rail and road infrastructure. One of the main reasons for the poor state of America’s railways is the lack of…

    February 21, 2023
    0
  • The Uncertainty of the Record-Breaking Interest Rate Curve Inversion as a Recession Predictor

    The financial world has been abuzz with talk about the record-breaking inversion of the interest rate curve. The interest rate curve, a graphical representation of interest rates for bonds of different maturities, has traditionally been seen as a reliable indicator of an impending recession. However, the question on everyone’s mind is whether the current inversion will accurately predict a recession this time. An inverted interest rate curve occurs when long-term interest rates are lower than short-term rates. This is a departure from the typical scenario where long-term rates are higher…

    February 5, 2023
    0
  • The Implications and Options for Addressing the Rising Interest Rate Payment on US Government Debt

    The amount of government debt held by the United States continues to rise, with the annual interest rate payment on that debt reaching a staggering $850 billion and counting. This figure represents a significant portion of the federal budget and is a cause for concern for many economists and policymakers. The rapid rise in the interest rate payment on government debt is not only a reflection of the growing debt itself, but also of the increasing cost of borrowing money in the current economic climate. One of the main factors…

    February 6, 2023
    0
  • How bad would it be if the U.S. fails to raise its debt limit?

    How bad would it be if the U.S. fails to raise its debt limit? The U.S. Congress has an important decision to make in the coming weeks: whether or not to raise the federal debt limit. This is a crucial decision that could have lasting effects on the nation’s economy, political system and global reputation if it’s not handled properly. But what does it really mean if the U.S. fails to raise its debt limit? In this blog post, we will explore this question and what the potential consequences could…

    February 2, 2023
    0
  • Is the 2023 Another Great Crash?

    With the stock market enjoying an unprecedented period of growth, many investors are asking whether we could be heading for a 2023 crash of great magnitude. The possibility of a financial crash is a real concern for investors, as it could have a devastating impact on the global economy. But is a 2023 crash a realistic possibility, or just a fear mongering tactic used by some to try and capitalize on people’s fears? To answer these questions, we must first examine what the future holds and what could lead to…

    January 17, 2023
    0
  • The Possibility of US Default on Its Debt/Treasury Bonds

    Will the US Ever Default on Its Debt? In the US, debt is becoming an increasingly common topic of conversation. The federal government’s debt has grown to more than $31 trillion and shows no sign of slowing down. This raises a critical question: will the US ever default on its debt? In this article, we’ll look at what exactly it would take for the US to actually default on its debt and examine how likely that scenario is. We’ll also discuss some of the consequences that could come with such…

    January 31, 2023
    0
  • John Roberts: What If the Economy Remains Resilient?

    Former Fed economist John Roberts does an exercise on what a lower 2023 unemployment rate projection (of 4.2%, instead of 4.6%) could do to FOMC’s SEP. To keep inflation on the current projected path, the terminal rate estimate might go up to 5.6% The economy in 2022 was remarkably resilient to higher interest rates and tighter financial conditions. Although residential construction fell, consumer spending continued to expand. The labor market remained strong in the second half of the year, with payrolls rising 357 thousand per month and the unemployment rate…

    February 13, 2023
    0
  • What Is Stagflation? Inflation Vs. Stagflation

    Stagflation refers to a state of economic conditions characterized by significant inflation, high unemployment, and slow or no economic growth. The term itself is a combination of “stagnation” and “inflation”. Prior to the 1970s, dominant economic theories posited that inflation would increase when unemployment rates were low and decrease when they were high. This theory was based on the Phillips Curve, an economic model that proposed an inverse relationship between unemployment and inflation. However, the prevalence of stagflation in the 1970s and 1980s surprised economists and forced them to refine…

    February 11, 2023
    0

Leave a Reply

Your email address will not be published. Required fields are marked *