By Samir Al Khoury
US bond markets are experiencing significant fluctuations amid economic uncertainty and ambiguity surrounding monetary and fiscal policies in the United States of America.
US Treasury bond yields surged noticeably across different terms in two consecutive sessions (yesterday and Friday). The two-year bond yield reached 4.48% yesterday, marking its highest level in a month since January 5, 2024. Similarly, the ten-year bond yield also peaked at 4.18% yesterday, its highest level since January 25, 2024.
The two-year bond yield is highly responsive to changes in federal monetary policy, making it particularly susceptible to fluctuations. Consequently, two significant factors contributed to the upward momentum of this short-term yield:
Firstly, the firm and cautious remarks made by US Federal Reserve Chairman Jerome Powell following the Fed’s meeting last Wednesday played a significant role. Powell dismissed the possibility of a sustained decrease in inflation by the March meeting, indicating that a rate cut in March was unlikely. Moreover, he reiterated this stance two days ago during one of his television appearances, emphasizing the need for patience before considering interest rate reductions. These statements suggest that interest rates are poised to remain elevated for an extended duration.
Secondly, the majority of US economic indicators surpassed analysts’ projections. This includes the consumer confidence index, gross domestic product (GDP), non-farm payrolls report, average hourly wages, unemployment rate, as well as the manufacturing and non-manufacturing purchasing managers’ indices issued by the Institute for Supply Management (ISM).
It’s noteworthy that there remains an inversion in the yield curve between the two-year and ten-year bond yields, with approximately negative 30 basis points. This inversion suggests the potential for the United States of America to enter a stage of economic recession or experience a gradual decline this year.
In conclusion, the increase in bond yields can be attributed to the hawkish stance of US monetary policymakers and the ongoing strength and resilience of the US economy.
However, the question arises: Will these elevated levels persist, and for how long?
From a technical perspective, a significant resistance level is observed at 4.49% for the two-year Treasury bond yield. Despite attempting to breach this level in two sessions, it failed to do so, indicating the possibility of a rebound in this yield in the near future, especially in the absence of supportive economic indicators favoring higher yields over bond prices.
Please note that this analysis is provided for informational purposes only and should not be considered as investment advice.
Taurex is the trading name of Zenfinex Global Limited, Stochastic Africa SL Ltd, Zenfinex Global LLC, and Zenfinex Limited.
Zenfinex Global Limited is registered in the Republic of Seychelles with registration number: 8428731-1 and is regulated by the Financial Services Authority of Seychelles (license number SD092). Its registered office address is F20, 1st Floor, Eden Plaza, Eden Island, Seychelles.
Stochastic Africa (SL) Limited is a company registered in Sierra Leone with Company Number: SL270319STOCH05271 and is licensed by the Bank of Sierra Leone under license number BSL/SAL/2023 and with the registered office at 148D Wilkinson Road, Freetown, Sierra Leone.
Zenfinex Global LLC is a company registered with the Financial Services Authority in Saint Vincent and the Grenadines under registered number 138 LLC 2019. Its registered office is Hinds Building, Kingstown, Saint Vincent, and the Grenadines.
Zenfinex Limited is a company registered in England and Wales under registered number: 11077380. Authorised and regulated by the Financial Conduct Authority under firm reference number 816055. Its registered office is 4th Floor, 4 Eastcheap, London, EC3M 1AE, United Kingdom.
*All trading involves risk
