On the first trading day after the Columbus Day holiday, the price of US treasury bond bonds rose sharply on Tuesday. It is obviously not difficult to find out the reason why the yield of treasury bond bonds of various maturities has declined - not only did the US manufacturing data released on the same day fall sharply, but also the oil price has fallen sharply for two consecutive days
Market data shows that US Treasury yields fell across the board overnight, with 2-year yields falling 1.2 basis points to 3.956%, 5-year yields falling 5.2 basis points to 3.861%, 10-year yields falling 7.3 basis points to 4.038%, and 30-year yields falling 9.7 basis points to 4.323%.
Against the backdrop of shrinking expectations of interest rate cuts by the Federal Reserve and signs of a resurgence in US inflation, the significant rebound in US bond prices on Tuesday is clearly quite rare in recent weeks. However, from the perspective of overnight market news, it does not seem surprising that the bond market finally witnessed this scene.
In terms of macro data, the data released by the New York Federal Reserve on Tuesday showed that manufacturing activity in New York State has fallen back to the contraction zone this month, with weaker orders and shipment indicators, which is in sharp contrast to the strong recovery trend of the previous month.
Data shows that the New York Fed Manufacturing Index plummeted to -11.9 in October, with an expected reading of 3.6. If this data is below zero, it indicates that manufacturing activity is in a state of contraction, and the current report is clearly lower than the estimates of all surveyed economists.
What surprised market participants particularly about the performance of this data was actually the comparison with last month's data - the New York Fed Manufacturing Index reached 11.5 in September, the highest level in 30 months. However, just one month later, this data plummeted by 23.4 points, and the magnitude of the monthly fluctuations was astonishing.
If the latest overnight New York Fed manufacturing index indicates that the US economy, especially the manufacturing sector, is still in an unstable situation, and downward pressure on the economy is expected to boost US bonds. So, the continuous and significant decline in oil prices this week also proves the rationality of the US Treasury rebound from another dimension: the decline in energy prices may help further ease inflationary pressures.
Oil prices fell more than 4% again on Tuesday, hitting their lowest level in nearly two weeks, due to weak demand prospects and media reports that Israel will not strike Iran's nuclear and oil bases, easing market concerns about supply disruptions. Brent crude oil futures closed down $3.21, or 4.14%, with a settlement price of $74.25 per barrel. US WTI crude oil futures closed down $3.25, or 4.4%, with a settlement price of $70.58 per barrel.
So far this week, the two benchmark crude oil prices in the US and Iran have both fallen by about $5, almost giving up investors' concerns that Israel may attack Iran's oil facilities in retaliation for all the gains accumulated since Iran's missile attack in early October.
We are seeing the war premium accumulated last week being lifted, "said Phil Flynn, senior analyst at Price Futures Group. What we see is actually not a supply issue, but a supply and demand risk issue
Previously, against the backdrop of the escalating situation in the Middle East, investors had become increasingly concerned that price pressures in the United States would once again rise, and that whoever was elected as the next US president could introduce policies to boost inflation. However, the decline in oil prices since the beginning of this week has largely eased this concern.
Christoph Rieger, head of interest rate and credit research at Deutsche Bank, said, "Recently, traders seem to have tied their trading procedures to crude oil futures. However, whether adjusting long-term inflation expectations in this context is reasonable needs to be another matter
Judging from the performance of the 10-year US Treasury yield, the anchor of global asset pricing, the current battle around the 4% integer threshold may be particularly crucial. At present, the yield of 10-year US Treasury bonds has risen for four consecutive weeks, reaching its highest level of 4.12% since July 31st last week.
Regarding this, Jim Barnes, the head of fixed income at Bryn Mawr Trust, said, "The upward trend in yields may have come to an end at the current level, and only a small catalyst is needed to form a soft top at the current level
You may need some type of substantial catalyst to keep yields rising, and since we don't have such a catalyst yet, yields may only fluctuate within a range until we can obtain some evidence of what factors may affect the Fed's future actions, "Barnes said.