The U.S. bond market had a tough start in July, with long-term U.S. bonds experiencing a difficult period
The U.S. Treasury market had a rough start in early July, with long-term U.S. Treasuries experiencing a difficult period. Over the past year, the BofA US Treasury Index with a maturity of over 10 years has seen a total return decline of 5.1%, and over the past two years, it has worsened, dropping by 6.1%. The stubbornness of the inflation rate has made investors uneasy. According to FactSet data, the yield on the 10-year U.S. Treasury bond has risen by about 11 basis points to around 4.48%. SEI's Chief Investment Officer expects the yield on the 10-year U.S. Treasury bond to rise to around 5% by the end of 2024. Nevertheless, it is expected that the Federal Reserve will begin cutting interest rates this year. The U.S. Bureau of Labor Statistics will release the employment growth report for June
According to the Zhitong Finance and Economics APP, the U.S. Treasury market had a difficult start in early July, with long-term U.S. bonds experiencing a challenging period as yields rose. Investment research firm Bespoke Investment Group stated in an email on Monday: "The bond market has been declining."
Data shows that over the past year, the total return of the BofA U.S. Treasury Index with a maturity of 10 years or more has decreased by 5.1%. Bespoke stated: "The annualized return over the past two years is even worse, at a decline of 6.1%."
The U.S. bond market has been struggling after the Federal Reserve's response to over two years of soaring inflation. Although the inflation rate has significantly eased since its peak in June 2022, its persistence has made many investors uneasy in the volatile bond market.
Bespoke found that since 1978, in the past 41 months, the BofA U.S. Treasury Total Return Index with a maturity of 10 years or more has only had positive returns in one month. The firm stated regarding long-term bonds: "This prolonged weakness relative to history is unprecedented. The only similar period of sustained weakness was from October 1979 to October 1981."
According to FactSet data, as of Monday afternoon, the 10-year U.S. Treasury yield rose by approximately 11 basis points to around 4.48%. Bond yields and prices have an inverse relationship.
SEI Chief Investment Officer Jim Smigiel pointed out in an interview on Monday that he expects the 10-year U.S. Treasury yield to rise to around 5% by the end of 2024, as inflation may remain "stubborn." However, he stated that he expects the Federal Reserve to start cutting interest rates this year, as sectors of the economy such as manufacturing are under pressure after the central bank raised rates to address high U.S. inflation.
Smigiel noted that inflation has put particular pressure on low-income consumers. However, more broadly, "the economy has shown remarkable resilience after the Fed's rate hikes." The U.S. unemployment rate has remained historically low, at 4% in May.
On Friday, the U.S. Bureau of Labor Statistics will release the employment growth report for June.
While many traders expect the Fed to possibly cut benchmark interest rates in September, Smigiel believes this may be "a bit premature." After a volatile first half of 2024 in the fixed income market, he anticipates more "trouble" for the U.S. bond market in the remaining time of this year According to FactSet data, iShares US Aggregate Bond (AGG.US) started to decline on the Monday of early July, with a total return of -0.7% in the first half of 2024. On Monday, the ETF fell by 0.54%. Meanwhile, Vanguard Long-Term Treasury ETF (VGLT.US) dropped by 1.68%, with a total return of -4.7% in the first half of 2024