US Treasury Bond Yields Reach New Highs Amidst Economic Strength

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US Treasury bond yields of various terms have risen significantly, as the two-year bond yield is currently recording 4.802%, which is its highest level since November 28, 2023. The ten-year bond yield also recorded 4.462% yesterday, which is its highest level since November 27, 2023.

The two-year bond yield is considered highly sensitive to federal monetary policy, and several factors have given upward momentum to this short-term yield:

  • Cautious statements by some Fed members, hinting that interest rates will remain high for a longer period of time, in addition to Fed Chairman Jerome Powell’s statement about his no need to rush to lower interest rates.
  • The strength and flexibility of the American economy, and most economic indicators exceeded analysts’ expectations, such as the manufacturing purchasing managers’ index issued by the Institute for Supply Management (ISM), which recorded a growth of 50.3 points, its highest level since September 2022, and the non-farm payroll report index (NFP), which recorded 303K new jobs, the highest level since May 2023, in addition to a decline in the unemployment rate from 3.9% to 3.8%.
  • Reducing market bets on US interest rate cuts, as the possibility of a rate cut of less than three times is currently being priced in contrast with the expectations of Federal Reserve members or the dot plot that indicated a three-time rate cut.

 

Analysts are closely awaiting the release of the headline and core consumer price indexes tomorrow, and expectations indicate that the headline consumer price index will record 3.4% on an annual basis, which is a higher percentage than the previous reading (3.2%). As for the core consumer price index, which excludes food and energy, expectations indicate that it will record 3.7%, which is a lower percentage than the February reading, which recorded 3.8%. Therefore, caution must be exercised, as any reading that is higher than expectations for these two figures indicates a high possibility that it will be reflected positively on US Treasury bond yields, specifically on two-year bond yields.

Technically, the momentum appears to be positive for the two-year bond yield, according to the Relative Strength Index, which is currently recording approximately 63 points.

According to Fibonacci, the two-year bond yield is likely to rise to levels of 4.823% (61.80%) and 5.015% (78.60%).

 

 

Please note that this analysis is provided for informational purposes only and should not be considered as investment advice.

 

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