Investors are growing increasingly concerned about the potential impact of the mounting U.S. debt on the bond market, with the issue expected to take center stage as the presidential election approaches. What Happened: The U.S. government’s debt is expected to balloon, potentially overshadowing an anticipated bond rally. This is due to the ongoing large fiscal deficits, which show no signs of abating ahead of the presidential election, Reuters reported on Friday. Investors are already adjusting their portfolios to mitigate potential losses if Treasury yields surge due to supply and demand imbalances. There are also concerns that the uncertainty surrounding the necessary debt for defici

A major trend shift is unfolding in the bond market, as key Treasury yields are currently testing the support of the crucial 200-day moving average, following the release of benign economic data that has cemented investor bets on Federal Reserve rate cuts. Last month, the inflation rate calculated using the consumer price index (CPI) came in at 3.4% compared to the same month last year, down from 3.5% in March, and in line with the forecasted 3.4% increase. The “core” inflation rate, which excludes volatile energy and food prices, also matched estimates, falling from 3.8% to 3.6%. April's inflation reading has raised hopes that the disinflation trend may restart after three consecutive

In recent weeks, several bond exchange-traded funds (ETFs) have experienced a significant surge in inflows, indicating a heightened interest among investors. This shift coincided with a market that significantly upped bets on Federal Reserve rate cuts for 2024, backed by a robust and ongoing disinflationary trend in the U.S. economy. Speculators have gone as far as factoring in an initial rate cut as early as March 2024, with whispers of a total of five rate cuts by December 2024. But which bond ETFs are currently piquing investors’ interest? From ‘Cash-Like’ to ‘Equity-Like’ While the third quarter in 2023 witnessed a notable uptick in inflows into cash-linked bond ETFs, pr

With escalating interest rates and inflationary pressures, the resiliency of bond investments is being put to the test. Investors find themselves watching helplessly as bond prices undergoe a relentless downward spiral, battered by the unrelenting blows of surging borrowing costs. The tumultuous events of 2022 bear witness to this challenge, as the global bond market endured one of its most turbulent years on record. Hopes were high for a turnaround at the onset of 2023, yet reality proved otherwise. The bond market’s sell-off persisted with Treasury yields soaring to multi-decade highs. The 10-year Treasury yield briefly hit 4.33% yield this week, surging to levels last seen in Octob

The July jobs report issued Friday delivered mixed takeaways for the market, although it confirmed an overall healthy U.S. labor market. On one hand, the pace of nonfarm payrolls growth fell short of forecasts in July, with 187,000 jobs gained compared to the expected 200,000. On the other hand, the jobless rate fell to 3.5%, exceeding expectations of 3.6%. Wages increased at a monthly pace of 0.4% and an annual rate of 4.4%, which was faster than expected. Biden, Fed Governor On July’s Jobs Report The market interpreted the jobs report in a dovish manner, lowering expectations for potential interest rate hikes in September. Market-derived probabilities put the chance of a 25-basis-

The U.S. dollar index (DXY), as tracked by the Invesco DB USD Index Bullish Fund ETF (NYSE:UUP), dropped below the key 100 mark on Thursday, plunging to its weakest levels since April 2022, as softer-than-expected consumer and producer inflation encouraged traders to scale back bets of more than one rate hike by the Federal Reserve this year. Consumer price inflation fell to 3% year on year in June, the slowest rate since March 2021, a full percentage point lower than in May and well below the predicted 3.1%. In June, producer inflation fell to a negligible 0.1% year-on-year, the lowest reading since August 2020 and considerably below the predicted 0.4%. The dollar came under pressure

The debt limit talk has reached its last and most important stage with just five days, or barely more than a 100 hours, when the U.S. Treasury may run out of money.  Both the stock and the bond market are likely to react strongly depending whether a deal is reached or not, or if any other surprises arise at the end. Treasury yields could also see sharp swings on sensitive headlines in the coming hours.  Negotiators for the White House and the Republican party are scrambling to avert a historic and probably catastrophic U.S. default, as Treasury Secretary Janet Yellen predicted "early June" as the date when the government's cash won't be able to meet all payments due.  Read Also: Congressi

The Federal Reserve's interest rate decision on Wednesday will have major repercussions not just for the stock market, but also for the bond market. The market is now pricing in a 25-basis-point hike to 4.75%-5% with a nearly 90% possibility, but what the Fed indicates it will do after March is what is putting investors on edge. Since the start of the banking crisis this month, U.S. Treasury yields have dropped significantly as the market began pricing in a Federal Reserve policy shift. With the strain still present in the banking sector, the likelihood of an overtightening has diminished significantly. The markets have already discounted two 25-basis-point of cuts by December 2023. How

On Wednesday, the Federal Reserve is expected to raise interest rates by half of a percentage point and announce the start of reductions to its $9 trillion balance sheet as U.S. central bankers work to combat high inflation. The decision would lift the Fed's short-term target policy rate to 0.75% - 1% and set a plan to trim its Treasuries and mortgage-backed securities portfolio by as much as $95 billion a month, writes Reuters. Markets have priced in further rate increases through this year and into next. "Powell will continue to have a strong incentive to sound hawkish," Piper Sandler economist Roberto Perli said this week. "The Fed's focus these days is 100% on bringing inflation dow

Japanese institutional managers are fueling the bond selloff just as the Federal Reserve pares its $9 trillion balance sheet, writes Bloomberg. The latest data from BMO Capital Markets show that the largest overseas holder of Treasuries has offloaded almost $60 billion over the past three months.  Bloomberg says that though it may be a small change relative to Japan's $1.3 trillion stockpile, the divestment threatens to grow.  The monetary path between the U.S. and Japan is diverging evermore, the yen is at 20-year lows, and market volatility stateside is breaking out.  "It's a significant amount of selling and on par with what we saw in early 2017 from Japan," said Ben Jeffery, BMO's