U.S. Treasuries
U.S. Treasury yields moved higher in the first half of April 2024, mainly due to stronger-than-market expectations for non-farm payrolls and CPI data, and further convergence in interest rate cut expectations. By the second half of April, the yield had slowed down, and yields had fallen short-term after the release of non-farm payrolls data in early May. On the one hand, economic data such as non-farm payrolls and ISM PMI are less than expected, and on the other hand, the Federal Reserve's May interest rate meeting hinted that interest rate cuts within the year are still high probability events, and interest rate cut expectations have rebounded slightly.
Special column in this issue: U.S. bond issuance accelerates. The U.S. Treasury Department's May quarterly refinancing meeting released its latest issuance estimates, with net issuance of $243 billion in the second quarter, up from the $202 billion estimated at the previous meeting. Issuance is expected to increase significantly to $847 billion in the third quarter. As the fiscal deficit expands in fiscal 2024, the issuance plan (close to $1.1 trillion) will need to be strictly implemented in the second and third quarters to meet the financing demand, and long-term yields will face greater supply pressure.
In the primary market, auction demand was generally weak in April, with strong demand for fund allocation and continued sluggish demand from overseas investors. In the secondary market, investors prefer medium to long term.
Looking ahead, in terms of unilateral strategies, the 10Y yield is expected to gradually form a medium-term double-top pattern. At present, the yield is still running in the rising wedge range, with 4.2%~4.4% below as a short-term strong support area and 4.7% as resistance above. In terms of curve strategy, the volatility of short-term interest rate cut expectations is limited, and the portfolio of major term spreads fluctuates in a narrow range. The increase in the supply of medium- and long-term U.S. bonds may cause the curve to steepen temporarily.
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