By Samir Al Khoury,
US Treasury bond yields of various terms rose significantly, with the two-year bond yield reaching 5.002% yesterday, its highest level since May 1, 2024. Similarly, the ten-year bond yield recorded 4.638% yesterday, its highest level since May 3, 2024.
The two-year bond yield is highly sensitive to federal monetary policy. Several factors have contributed to the upward momentum of this short-term yield:
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Weak demand for US Treasury bonds issued by the US Treasury.
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Hawkish statements by some Fed members, hinting that interest rates will remain high for a longer period.
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The strength and flexibility of the American economy, with most economic indicators exceeding analysts’ expectations. For instance, the consumer confidence index recorded 102 points two days ago, surpassing expectations (96.0) and the previous reading.
Today, analysts are closely watching the release of the GDP index, which is expected to record a 1.6% increase on a quarterly basis, lower than the previous reading of 3.4%. Additionally, the core personal consumption expenditures (PCE) price index, a crucial indicator preferred by the US Federal Reserve, will be released tomorrow. Expectations indicate it will record a 0.2% increase on a monthly basis in April, lower than the March reading of 0.3%.
Therefore, caution is advised. Any higher-than-expected readings for both GDP and PCE indicators could positively impact the US dollar and US Treasury bond yields, and negatively affect stocks, bonds, and commodities, specifically gold, due to the inverse relationship between the dollar and other financial instruments.
Technically, the momentum appears positive for the two-year bond yield, according to the Relative Strength Index, currently at approximately 59 points. According to Fibonacci analysis, the two-year bond yield is likely to rise to levels of 5.016% (78.60%) and 5.259% (100.00%).
Please note that this analysis is provided for informational purposes only and should not be considered as investment advice.
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