Ten days to decide the fate of the “anchor of global asset pricing” is coming!
The U.S. bond market has already suffered the most severe sell-off in six months, and now it is about to enter a crucial two weeks—which could determine the ultimate fate of the global financial market before the end of the year.
The 10-year U.S. Treasury yield, known as the "anchor of global asset pricing," touched its highest level since July 26 last week at 4.26%, and it is very likely to record the largest monthly basis point increase since April this month. For bond market traders, the truly "hell mode" test of news may not have even begun.
Among them, the highlight of this week will be the quarterly bond sale scale announced by the U.S. Treasury Department on Wednesday and the non-farm employment data on Friday. Of course, in addition to non-farm, including JOLTS job vacancies, third-quarter GDP, and the Fed's favorite inflation indicator, the PCE price index, will also show whether the degree of economic cooling is sufficient to prove that the Fed's further rate cuts are reasonable.
Alex Chaloff, Chief Investment Officer of Bernstein Private Wealth Management, said, "The risk in the coming weeks is indeed very high."
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In the past month, U.S. bond prices have fallen sharply, as the continued strength of the U.S. economy increasingly makes people doubt whether the Fed can continue to cut interest rates in the coming months.
Although the Fed started this round of easing cycle with a 50 basis point rate cut last month, many traders have reduced their bets on Fed rate cuts after data showed that the economy is expanding at a relatively fast pace. As a result, U.S. Treasury yields have jumped sharply, raising the borrowing costs across the market and causing U.S. bonds to possibly record their first monthly loss since April.
Sinead Colton Grant, Chief Investment Officer of BNY Wealth, said, "So far, this is a very important cycle—many things may happen in the next two weeks."
The next ten days are full of twists and turns
This series of key news events is triggering a risk that bond market sell-offs may intensify in the coming weeks, especially as investors prepare for waves. One sign is that traders are paying the highest premium this year for options aimed at protecting their portfolios from soaring U.S. Treasury yields.
Of course, everything is not absolute. Some upcoming events may also support the bond market. For example, it is expected that the U.S. Treasury Department will announce a stable debt auction scale for the next quarter to avoid any supply pressure. The PCE price index, the Fed's preferred inflation indicator to be released on Thursday, is expected to show some easing of price pressures, and the U.S. Department of Labor is expected to report a decline in job vacancies.In this Friday's non-farm payrolls report, the numbers provided by the October non-farm employment report may not be very "reliable" due to the impact of hurricane disasters and a series of strikes. The economic data currently surveyed by the media estimates that the number of new non-farm jobs in October may be around 123,000, far below the previous month's 254,000.
Chaloff said that a non-farm number of around 180,000 would be a magical number. If the number of jobs is higher, the Federal Reserve "will have to think long and hard about what to do next."
In addition to the events that directly affect U.S. Treasury bonds mentioned above, other economic hotspots in the next two weeks include the continued release of earnings reports from leading U.S. technology companies, as well as the 12th session of the 14th National People's Congress Standing Committee of China, scheduled for November 4th to 8th.
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