Interest rate cuts boost trading, US Treasury bonds erase this year's decline
The Bloomberg US Treasury Index recorded a cumulative increase of 0.25%, while the index had previously fallen by 3.4% when expectations of a rate cut in April weakened, indicating that overall US Treasury prices have turned positive from negative
Overnight US CPI data for June showed a comprehensive cooling of inflation, leading traders to increase bets on a Fed rate cut later this year.
After the release of overnight CPI data, the market fully digested the possibility of a rate cut in September. US Treasuries rallied in response, with the yield on the 2-year Treasury, which is more sensitive to interest rate policy, plunging by 13 basis points.
It has almost erased the decline seen earlier this year. The Bloomberg US Treasury Index recorded a cumulative increase of 0.25%, while the index had fallen by 3.4% when rate cut expectations weakened in April, indicating that US Treasury prices as a whole have turned positive from negative.
Year-to-date, the price of the 10-year Treasury has cumulatively fallen by 3.77%, while the price of the 2-year Treasury has seen a slight increase of 0.19%.
Sydney-based ATFX Global Market Chief Analyst Nick Twidale commented:
"We are finally seeing some positive data for the US bond market."
"Comments from Fed officials will be closely watched in the coming weeks, but it does feel like a turning point for US bond bulls is approaching."
However, there are still cautious views on the outlook for US Treasuries.
Ronald Temple, Chief Market Strategist at Lazard, believes that even if the Fed cuts rates 2-3 times this year, interest rates could still be at a high level of 3.5%-4.5%, meaning that the 10-year Treasury "has little room for price appreciation compared to current levels."