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Ultra T-Bond

The Ultra T Bond rates experienced their worst quarter in more than 40 years in January-March, and now many investors are wondering if it’s time to take advantage of lower prices and resume buying.

What’s going on with Ultra T Bond rates

The Bloomberg US Aggregate index mainly includes:

  • US government bonds, 
  • highly rated corporate bonds,
  • mortgage-backed securities.

Its figure fell by 6% from the beginning of the year to March 30. This is the biggest quarterly drop since 1980.

Ultra T Bond futures largely reflect expectations of what the Federal Reserve’s base rate will be over the life of the bonds. Recently, forecasts of how fast the Fed will raise the Ultra T Bond interest rate have risen sharply, which has led to lower prices and higher bond yields.

Ultra T Bond US history

Since the beginning of the year, the yield on two-year treasuries has shown the largest increase since June 1984 (by 155.4 basis points), five-year – since 1987. Similar indicators for 10-year and 30-year US Treasuries rose to a maximum for the year – by 82.8 bp, respectively, and by 55.6 b.p.

Ultra T Bond futures indicate that investors are expecting it to rise to 3% per annum next year compared to the current range of 0.25-0.5%.

However, investors also expect the Ultra T Bond interest rate to fall quickly after reaching this level. This view is based on the continued belief that inflation, which has reached a 40-year high, will begin to weaken due to the net factors:

  • an increase in the supply of goods by enterprises;
  • a decrease in consumer spending against the background of the curtailment of state support programs. 

Many investors doubt that the US economy will be able to sustain interest rates of 3% without a significant slowdown.

China’s holdings in Ultra T Bond US Treasuries fall to a 12-year low

Chinese holdings in U.S. Treasury bonds fell to their lowest level since May 2010, with Chinese investors likely cutting losses as Treasury bond prices tumbled after Federal Reserve officials signaled a major rate hike to curb the rapidly growing inflation.

Chinese assets fell to $1.003 trillion in April, down $36.2 billion from $1.039 trillion the previous month, according to the US Treasury Department. The data showed that in May 2010 China’s Treasury bond stock stood at $843.7 billion.

The cut in the Treasury’s holdings could also be used to diversify China’s foreign exchange holdings, Ultra T Bond forecast analysts say.

Selling in China contributed to the contraction in total foreign holdings of treasuries in April, which helped boost yields. The benchmark 10-year US Treasury yield started in June at 2.3895% and rose about 55 basis points to 2.9375% by the end of the month.

Looking at the state of world economics today it is unsurprising that the Ultra T Bond forecast is a bit disappointing. 

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