US Treasuries extended their gains on Monday, following their largest monthly advance in more than two years.
As international oil prices fell sharply, market concerns that energy costs would drive inflation higher and force the Federal Reserve to keep raising interest rates eased, pushing Treasury prices up and yields down.
Medium- and long-term US Treasuries led the rally, with yields on 10-year to 30-year notes generally falling by about 4 basis points to their lowest levels since September.
The US 10-year Treasury yield dropped as much as 6 basis points intraday, falling below 4.87% to its lowest since September 10.
By contrast, short-term US Treasuries posted smaller gains.
Analysts noted that the pullback in oil prices not only eased inflation pressure but also helped stabilize US stocks to some extent, reducing some short-term safe-haven demand.
Over the past month, major US technology stocks came under sustained pressure, prompting investors to shift toward lower-risk US Treasuries, which became an important driver of the bond rally.
Deutsche Bank rate strategist Steven Zeng said the historically common negative correlation between bonds and stocks appeared to have re-emerged over the past month.
He noted that the Treasury rally may be linked to investors seeking to hedge against further stock market declines, while the sharp drop in oil prices also provided support for lower US Treasury yields.
The latest changes in the energy market are another key factor driving US Treasuries stronger.
On Monday, West Texas Intermediate crude futures plunged 7.4%, closing near $96.50 per barrel.
Earlier, both the United States and Iran signaled willingness to resolve their conflict through negotiations, easing market concerns about persistent disruptions to Middle East energy supplies.
The months-long US-Iran conflict had previously driven international oil prices sharply higher and pushed up US inflation pressure.
With energy prices retreating, investors have begun reassessing the need for the Federal Reserve to further tighten monetary policy.
The Fed implemented its first rate hike since 2023 in September this year, mainly because rising oil prices caused US inflation to reaccelerate.
Although the recent decline in oil prices has eased some inflation concerns, the rates market still expects the Fed to raise rates at least twice more by the end of 2027, by 25 basis points each time.
However, over the past month, the cumulative rate hike expectations priced in by the market have declined somewhat.
This means that while investors have not completely ruled out the possibility of further Fed rate hikes, their judgment on the extent of future monetary tightening has eased compared with before.
It is worth noting that this round of US Treasury gains showed clear maturity differences, with long-term bonds outperforming short-term bonds, causing the US Treasury yield curve to flatten.
HSBC US investment banking rates strategist Dhiraj Narula said the smaller decline in short-term Treasury yields compared with long-term yields may be related to market adjustments after last week's Fed policy meeting.
Last week, the Fed decided to keep rates unchanged, after which the US Treasury yield curve steepened noticeably.
Monday's market moves may partly reflect a reversal of that earlier adjustment.
In addition, investors are watching the US Treasury's future debt issuance plans, especially whether the supply of long-term bonds may decrease.
Narula pointed out that questions remain in the market about whether the US Treasury will reduce the scale of long-term bond issuance.
US officials may provide more information on the matter during quarterly financing strategy discussions on Wednesday.
If the US Treasury signals a reduction in long-term bond supply, it could further affect market expectations for the supply-demand relationship and yield trends of long-term US Treasuries.
For more major Hong Kong stock market news, download the Zhitong Finance app. For more Hong Kong and overseas wealth management news, please visit www.zhitongcaijing.com (search for "Zhitong Finance"); to join the Zhitong Hong Kong stock investment group, please add the Zhitong customer service WeChat (ztcjkf).
Comments