After the sharp decline in U.S. Treasuries, traders await Powell's speech to "provide direction."
After three days of rebound, U.S. Treasuries face a test as investors focus on Federal Reserve Chairman Jerome Powell's speech and key data. The yield on the 10-year U.S. Treasury remains stable at 4.33%, while the yield on the 2-year Treasury has fallen to 3.82%. The market is shaken by Trump's global tariff policy, and Powell's speech will provide clues for the market's response to volatility and the direction of interest rates. The U.S. Treasury will issue $13 billion in 20-year bonds, and the market anticipates a recovery in demand
According to Zhitong Finance APP, U.S. Treasuries experienced a three-day rebound, which will be tested on Wednesday. Investors are eagerly awaiting remarks from Federal Reserve Chairman Jerome Powell while closely monitoring key data and a bond auction.
The yield on the U.S. 10-year Treasury note stabilized at 4.33% after erasing early losses. Traders are still dealing with the aftermath of the most severe bond sell-off in over twenty years. The yield on the more policy-sensitive two-year Treasury note fell by 3 basis points to 3.82%. Earlier, news that China was willing to initiate trade talks with the U.S. helped narrow the early losses in the two-year Treasury yield.
This month, the U.S. Treasury market has been significantly volatile due to President Donald Trump's global tariff policy. This move poses a threat to the U.S. economy and undermines the reputation of U.S. Treasuries as the safest asset globally. Hauke Simson, a strategist at Commerzbank, stated that investors will closely watch Powell's speech later on Wednesday for clues about the Fed's ability to "respond to market turmoil" and guidance on the direction of interest rates.
Additionally, U.S. retail sales data will reflect consumer confidence in March (before the announcement of the tariff policy). The U.S. Treasury will auction $13 billion in 20-year Treasury bonds, hoping to replicate the strong demand seen during last week's bond auction. Since the reintroduction of the 20-year Treasury bond about five years ago, this maturity has struggled to find a stable group of buyers.
On Tuesday, U.S. officials indicated that they are discussing a potential rule change aimed at reducing trading costs for banks and minimizing the risk of a trading freeze in the $29 trillion U.S. Treasury market, which has provided support to the market.
This is undoubtedly good news for bank trading departments. Last week, bank trading desks faced immense pressure to cope with a massive bond sell-off. Market volatility was extreme, with the spread between 30-year U.S. Treasuries and similar products in the swap market reaching a historic record, expanding by a full percentage point for the first time.
Apart from the U.S., government bonds in other countries also saw increases. The yield on Germany's 10-year Treasury note fell by 2 basis points to 2.52%. U.K. government bonds received an additional boost as March inflation data came in below expectations, with the 10-year Treasury yield dropping by 3 basis points to 4.62%