Citadel and other major institutions warn: Is the bear market in the US bond market over? Too optimistic!

More and more investors are warning against prematurely declaring the end of the bear market in the US bond market.

On Wednesday, the Federal Reserve held its second consecutive meeting without making any changes, which has intensified speculation that the Fed may end this round of aggressive rate hikes. In addition, the US Treasury has slowed down the pace of issuing long-term bonds, significantly boosting the US bond market. US bond prices rose sharply on Wednesday and Thursday, marking the strongest rally since March of this year.

However, the fact is that while Fed Chairman Powell made dovish remarks, he also left the door open for further rate hikes, warning that if the US economy continues to expand at a faster-than-expected pace, US bond yields may retest recent highs.

Important institutions that expect US bond yields to continue rising have the following views:

• Michael de Pass, Global Head of Interest Rate Trading at top hedge fund Citadel, stated that the US bond market is still very dependent on data, so market sentiment could change.
• JPMorgan CEO Jamie Dimon warned that inflation could be "more challenging than people imagine," and in a situation where inflation is stickier, the Fed could still raise policy rates by 75 basis points. However, the Fed's decision to pause rate hikes is correct as it allows them to observe changes in the economic situation.
• Stephen Dainton, Co-Head of Global Markets at Barclays, stated that it is highly unlikely that the Fed has completed its entire tightening policy.
• Several Wall Street institutions predict that the benchmark 10-year US bond yield will surpass 5% in the future. Franklin Templeton suggests that the peak could reach 5.25%, a level not seen since 2007.
• Macro research and institutional brokerage firm Strategas believes that US bond yields are still on an upward trend and that it is unrealistic to expect bond prices to have already bottomed out. Many people are eagerly anticipating the peak in yields, but this is not the expected behavior for US Treasuries after experiencing the worst bear market in over 40 years. Bear markets end with indifference and neglect.
• K2 Asset Management also mentioned that the large issuance of US bonds could push bond prices lower, although Wednesday's data showed that the latest issuance was lower than expected.

Previously, Wall Street news website Huashang Jianwen reported that a number of Wall Street investment banks have been shouting that US bonds have bottomed out, and large institutions including Vanguard, Pimco, and BlackRock have been buying US bonds at low prices.

The contrasting views above highlight the hesitation among industry insiders while many Wall Street investment banks or investors believe that US bonds have bottomed out. The resilience of the US economy has repeatedly proven to be incredible, leading the Fed to state that rates may remain high due to inflation still being a major risk.

However, industry insiders unanimously believe that the worst plunge in US bonds is over. The latest media survey shows that nearly 90% of respondents believe that the 10-year US bond yield has either peaked or will not rise above 5.5%.

The recent strong rebound in US bonds began with the statement from Bill Ackman, the hedge fund guru and founder of Pershing Square Capital Management, last week. Having accurately shorted the market before, he revealed last week that he had closed his short position on long-term US bonds, citing too many global risks and the current level of interest rates making it inappropriate to continue shorting the bond market. In addition, the slowdown in the US economy is happening at a faster pace than the recent data suggests.