The party seems to be over in the US Treasury bond market as the rally in bonds has surprised many by taking the 10-year yields to their lowest levels in 11 months.
The soaring prices have pushed the benchmark 10-year yields to 2.422 percent on Thursday. This is the lowest since last June. The low level of yields comes at a time when the US Federal Reserve has eased its bond-buying stimulus program.
Supply and demand are the basic principle that sets the market prices. Going by the guiding principle, the rally in US Treasury bond market can be concluded as the result of following factors:
- Falling yields in Europe
- Extra demand from pension funds
- Investors’ concerns about long-term economic demand
- Technical factors including short-covering from those who thought bond yields were headed higher
Jobs data and the European Central Bank (ECB) meeting scheduled next week will determine the fate of bond prices.
Meanwhile, the investors seem not to be happy as they are not convinced about why Fed is cutting stimulus. They’re concerned about weak economic indicators and a lack of inflation.
In such a scenario, all hopes lie on the jobs report that will arrive by next week.
How the jobs data will come in or how forcefully the ECB will act, will decide the fate of bond market.
David Keeble, global head of interest rates strategy at Credit Agricole Corporate and Investment Bank in New York, said a decent jobs report could “remind us that we have to get back to the reality that the economy is picking up.”