On February 24, the price of U.S. Treasuries rose again, pushing the yields on 2-year and 10-year Treasuries to their lowest levels so far this year. This rebound is mainly due to recent U.S. economic data showing signs of instability, which has renewed market concerns about inflation and economic recession. Many investors are starting to shift funds to U.S. Treasuries, avoiding higher-risk assets.
At the close of the New York bond market on the 24th, the yield on the 2-year Treasury, which is more sensitive to the Federal Reserve's (Fed) interest rate policy, fell 2.6 basis points to 4.166%, a new low since December; the yield on the 10-year Treasury fell 2.8 basis points to 4.390%, the lowest since mid-December. The yield on the 30-year Treasury fell 2 basis points to 4.647%.
Although no major market-moving data was released that day, the weak economic data from the past week still had a significant impact on the market. For example, on February 21, the preliminary U.S. services PMI (Purchasing Managers' Index) published by S&P Global fell below the 50 threshold to 49.7, indicating the U.S. services sector has entered a recession; the University of Michigan's February consumer confidence index also hit a new low since November 2023, with the public full of doubts about the future economy and concerns about rising inflationary pressures.
The weakness of these economic data has made the market sentiment more conservative, and has exacerbated investors' concerns about an economic slowdown, while keeping a close eye on the release of the Personal Consumption Expenditures (PCE) price index this Friday to make the next judgment.
Traders Bet Big on Bond Rally as Tariff Growth Shock Looms
According to a Bloomberg report, as U.S. Treasury prices rebound, market risk aversion is growing stronger. Over the past week, U.S. Treasury prices have surged, pushing yields further down, especially the yield on the 10-year Treasury, which has fallen from 4.57% to 4.28%. Many traders are starting to bet that an economic slowdown will further push down yields, and are shifting funds into U.S. Treasuries.
Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets, said:
Market concerns about the possibility of Trump imposing more tariffs again have made the global economic outlook more uncertain, further increasing the market's demand for safe-haven assets. Especially since Trump has recently hinted at imposing more tariffs on imports from Canada and Mexico, which will further pressure the U.S. economy.
At the same time, comments from U.S. Treasury Secretary Janet Yellen have also heightened the market's bullish sentiment. She said:
With the implementation of Trump's policies, the yield on the 10-year Treasury should "naturally" decline, further increasing the market's demand for Treasuries.
Derivatives Market: Bullish Sentiment Rises, Expectations of Fed Rate Cuts Increase
In addition to the spot market, the derivatives market also shows strong bullish sentiment. Many futures traders have significantly increased their long positions, and the market generally expects the Fed to cut rates at its May meeting. According to the market, the net long positions in federal funds rate futures have grown by more than 50% in the past week, indicating higher expectations for future changes in interest rate policy.
Currently, the market probability of a rate cut in May has reached 32%, a significant increase from 8% a week ago. The market generally expects the Fed to take a more dovish stance in the coming months, possibly further easing monetary policy to address the economic slowdown.
