The US Treasury yield fell from a high on Thursday, with data released on the same day showing that the US economy grew slower than previously estimated in the first quarter, and consumer spending was revised down. This may give the Federal Reserve more room to cut interest rates this year, temporarily easing the selling pressure on the bond market in recent times.
Market data shows that the yield of US Treasury bonds ranging from 2 to 30 years hit its largest daily decline in two weeks on Thursday. As of the end of the New York session, US Treasury yields fell across the board, with the 2-year Treasury yield falling 4.8 basis points to 4.933%, the 5-year Treasury yield falling 6.9 basis points to 4.57%, the 10-year Treasury yield falling 6.8 basis points to 4.549%, and the 30-year Treasury yield falling 5.8 basis points to 4.678%.
On Wednesday, the yield of US bonds with multiple maturities hit a four week high. As the auction of treasury bond bonds for two consecutive trading days this week was weaker than expected, the market was worried that a large amount of debt supply was affecting investor demand.
But before and after the latest economic data was released on Thursday, the sell-off in the bond market eased somewhat. Analysts say that the increase in returns over the past few trading days may have been excessive.
According to data from the US Bureau of Economic Analysis on Thursday, the US GDP grew at an annualized rate of 1.3% in the first three months of this year, below the initial value of 1.6%. As the main engine of the US economy, personal expenditure grew by 2.0%, with an initial growth rate of 2.5%. In the price field, the personal consumption expenditure (PCE) price index, a favored inflation indicator by the Federal Reserve, grew at an annualized rate of 3.3% in the first quarter, slightly lower than the initial value. The core PCE price index, excluding food and energy, increased by 3.6% from an initial value of 3.7%.
These data highlight the decline in economic momentum in the United States at the beginning of 2024, following consecutive unexpected growth in 2023. High interest rates, reduced savings accumulated during the pandemic, and slower income growth are some key factors affecting American households and businesses.
Zachary Griffiths, Senior Investment Strategist at CreditSights, said, "The revised GDP data is slightly encouraging in terms of personal consumer spending: the data has slightly revised downwards, and people did not expect it to be even weaker before. This will help the Federal Reserve assess inflation control. I believe the market is ready for a big rise."
The other data released on that day also indicated that the US economy and labor market were slowing down. Data shows that in April, the contracted sales of existing housing in the United States recorded the largest decline in three years, and the overall level of housing purchase activity was also at the lowest level since the outbreak of the COVID-19 in the spring of 2020. In the week ending May 25th, the number of initial claims for unemployment benefits increased by 3000, seasonally adjusted to 219000, higher than market expectations.
After the release of GDP, initial unemployment claims, and real estate data, industry insiders have slightly increased their expectations for the magnitude of the Federal Reserve's interest rate cut this year. Traders predict that the Federal Reserve will cut interest rates by 35 basis points this year, slightly higher than the previous day's 31 basis points.
Goldman Sachs is concerned that the recent sell-off in the bond market may dig a hole for US stocks!
Overall, although overnight US bond yields have generally shown a significant decline, some industry insiders are still quite cautious at the moment. Earlier this week, the yield on two-year US Treasury bonds briefly returned above the 5% mark, causing many Wall Street to once again sweat over the prospects of the US stock market. On Thursday, the three major stock indexes in the United States fell for the second consecutive trading day, with the Nasdaq Composite Index, which is concentrated in technology stocks, falling more than 1%.
Goldman Sachs strategist Peter Oppenheimer stated on Thursday that the strong stock market rally this year may fade due to the rise in bond yields and the rise in US stock valuations.
Oppenheimer said in an interview, "US bond yields are on the rise, which limits the current upward space for the stock market. Excluding tech giants, US companies' profit growth is also moderate. We believe that the stock market will be mostly in a sideways consolidation state in the coming months."
This strategist, who said that the stock market outside the United States is more attractive this year, believes that the correlation between US stocks and US treasury bond bonds may rise further, because the yield is now at a level that "may drag down all asset classes". When answering whether an increase in returns would be punitive for the stock market, Oppenheimer stated that this is absolutely correct.
Oppenheimer pointed out that the faster the US Treasury yield rises, the greater the impact on the stock market. Considering the valuation of stocks, this will become a market slowdown. He reiterated that investors should seek to diversify regional and industry risks. Diversification is an opportunity that investors have in a relatively calm market environment.
Looking ahead to the day, the Federal Reserve's most favored inflation indicator - the April core PCE price index - is set to be released tonight, which is worth investors paying close attention to. This data may provide more clues on how the Federal Reserve will cut interest rates later this year.
Eugene Epstein, head of structural products at Moneycorp North America, said that this data may be more likely to drive market trends than Thursday's GDP correction data.