The market of T bonds significantly suffers from the US monetary policy as the index hit a record low point.
What are the T bond rates today?
- The yield on ten-year US government bonds is at the level of 2.404% per annum compared to 2.339% a month earlier. At the end of last year, it was 1.496% per annum, and at the height of the pandemic fell to a record low of 0.501%.
- The yield of two-year T bonds US is 2.392% against 2.343% per annum the month before.
- Thirty-year bonds – 2.496% against 2.452% per annum.
However, let’s not forget that in the money markets, eight Fed rate hikes this year are priced in, with a target rate peaking around 3% by the middle of next year. At present, it is hardly imaginable that investors would be prepared for an even steeper and/or longer rate hike cycle.
T bond forecast amid the foreign exchange outflow
Japan and T bond interest rate
Japan’s holdings of US Treasuries fell to their lowest level since January 2020 amid a steady depreciation of the yen against the dollar, which may have prompted Japanese investors to sell US assets to benefit from the exchange rate.
Japanese assets fell to $1.218 trillion from $1.232 trillion in March. Japan remained the largest holder of treasury bonds outside the US until then.
T bond futures stats
On a transactional basis, US Treasuries recorded a net foreign exchange outflow of $1.152 billion in April from a net new foreign exchange inflow of $48.795 billion in March. This was the first outflow since October 2021.
The Federal Reserve at its monetary policy meeting in March raised benchmark interest rates by a quarter of a percentage point. The institution also predicts a slowdown in the economy and rising unemployment in the coming months as well as the downtrend in T bond futures.
In May, the Fed raised rates by 50 basis points, but at the June policy meeting, rates were raised by a solid 75 basis points to stem a devastating surge in inflation.
Impact on the T bond rates
In other asset classes, foreigners sold $7.1 billion worth of U.S. stocks in April, with a net outflow of $94.338 billion in March, the biggest reset since January 1978, when the Treasury began tracking the data. Foreign investors have been selling shares for four consecutive months.
On the other hand, inflows into the T bonds US sector totaled $22.587 billion in April compared to $33.38 billion in March, the largest since March 2021. Foreigners have been net buyers of US corporate bonds for four consecutive months.
US residents, meanwhile, have reduced their holdings in long-term foreign securities, with net sales of $36.7 billion.
T bond interest rate prediction
Rising prices and a more hawkish stance by the Fed have raised investor fears that a recession could be on the horizon, as evidenced by bond yield inversions and a T bond forecast. Investors were selling short-term Treasuries in favor of long-term ones, indicating their concerns about the state of the economy in the short term.