Is the historical bearish market for US bonds an opportunity to buy in reverse?

What is the cause of the sharp drop in US long-term government bonds?
What is the reason for such a sharp rise in US bond yields? Until now, it has been shrouded in mystery, and there are few fundamentals that can be perfectly explained. Mr. Daleep Singh, a former senior official of the New York Federal Reserve and current chief global economist of PGIM Fixed Income, commented on this situation as follows.

Have US long-term government bonds bottomed out?
Since the Federal Reserve (Fed) suggested that interest rates were “higher and longer (higher-for-longer)”, the US bond market has been in turmoil. On 10/6, Bank of America Global Research reported that US long-term government bonds peaked to the bottom of a 50% decline, and the US bond rate was”Historic bear marketHe said it was heralding the arrival of”. Also, according to the report, the decline in long-term US bonds has begun to rival the worst market crash in US history. Since peaking in March 2020, the price of 10-year US bonds has fallen 46%. The decline in 30-year US bonds is even more serious, and it has plummeted 53% close to the 57% crash in US stocks during the financial crisis.

Barclays analyst Ajay Rajadhyaksha and his team have stated that unless the stock market continues to slump and the attractiveness of bond assets does not recover, global bonds will continue to decline. These thingsThe fate of the bond market depends on the stock marketIt means. Although the S&P 500 stock index has fallen by about 5% in the past 3 months, it is stated that this is insufficient to drive the rise in the bond market.

In response to the viewpoint that “the surest way to stop the rapid rise in long-term bond yields is that the Fed denies raising interest rates again by the end of the year and suggests that it is positive to shorten the QT (quantitative tightening) period,” Barclays analysts saidIt is unlikely that the Fed will ease QTWell, oversales of US bonds will continue. Furthermore,Increase in the supply of government bonds due to the growing deficit of the US federal governmentIt has also led to an increase in term premiums.

Meanwhile, according to the Bank of America report,The sharp drop in bonds has not stopped investors from entering the US bond market. According to EPFR data, although the outflow of funds from bond funds for the week ending 10/4 (Wednesday) was 2.5 billion dollars, funds of 4.6 billion dollars flowed into US short-term government bonds,Cash inflows for 34 consecutive weeksIt became.

Future prospects
Mr. HartnettIf the recession reflected in the bond market and stock market is truly “converted into economic data,” bonds will rebound rapidlyThen, it was pointed out in the report that it would be the asset class with the best performance in the first half of 2024. Mr. Hartnett has shown a pessimistic view of risk assets this year, and while there is a possibility of a hard landing due to rising interest rates, he maintains a bearish view on US stocks.

Nick Timiraos, the Wall Street Journal's chief economics specialist, warned that soaring US long-term bond yields would shatter expectations for a soft landing, and a sharp rise in borrowing costs could rapidly slow economic growth and increase the risk of a major financial market crash. As a result, there is a possibility that the Fed's observations of additional interest rate hikes this year will weaken.

Rate hike observations
After the announcement of the number of people employed in the non-farm sector in the US in September on Friday, due to results that greatly exceeded expectations, in the interest rate swap marketThe probability of interest rate hikes by the end of the year will riseObservations that interest rate cuts will beginIt's being put off from July to September next year。