The staggering U.S. Treasury market was put to the test again. This is because government bond yields are soaring due to economic recovery and inflation prospects, and large-scale government bond auctions are scheduled again.
In February, the US Treasury bond market saw a surge in yields due to sluggish auctions. Treasury yields and prices move in opposite directions. This is the reason why the market is again tense with the auction of US Treasury bonds worth $62 billion worth of 7 years, especially during this week’s auction. As the government puts a large amount of long-term government bonds on the market, the selloff could intensify.
“Supply can be a very important part of next week’s auction results,” said Justin Lederer, strategist at Canter Fitzgerald. “You will be able to see if it was an incident or a long-term trend.” “There is tremendous volatility in the government bond market, and the key is how much an interest rate hike will affect stocks.”
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At the auction in February, investors were already pulling out of the government bond market, and the government bond market continued to weaken. In addition, the US Central Bank’s Federal Reserve (Fed) has decided not to extend the bank’s complementary leverage ratio and SLR exemption, which is scheduled to end at the end of this month. On the 19th, the Fed announced in a statement that “the SLR exemption measures that were applied temporarily will end as scheduled.”
The SLR stipulates that a certain level of equity capital must be held in order to purchase additional risky assets, including government bonds. Last year, the Fed relaxed regulations so that government bonds were not required to be included in the ratio calculation to stimulate investment. The deadline was at the end of this month.
It is a system that induces large banks to buy government bonds. However, with the end of this system, the government bond market is inevitably shocked. Some analysts say that the Federal Reserve’s actions run the risk of adding stress to the auction.
The rate of increase in government bond yields was also high in government bond yields. According to the Bloomberg Barclays U.S. Treasury Index as of the 18th, the U.S. 10-year Treasury bond price fell 22% from its highest in March 2020.
Powell Last week, the Fed reiterated its commitment to continuing easing monetary policy. Nevertheless, the market is still unable to abandon concerns. Technology stocks continued to decline again last week as government bond yields rose.
In the future, the remarks of Chairman Powell and the remarks of key Fed officials are expected to affect the market. “We expect Fed officials’ gaze to match Powell’s views,” said Tom D. Galoma, managing director of Seaport Global Securities. The 10-year US Treasury bond rate is expected to reach 1.9~1.95% in the middle of this year. It predicted that it could reach the level of 2.25% depending on additional stimulus measures in the future.
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