The US-Japan trade agreement cools down safe-haven demand, and US Treasury yields rebound after five consecutive declines
U.S. Treasury bonds fell in price due to weakened safe-haven demand from the U.S.-Japan trade agreement, with the 10-year Treasury yield rising 3 basis points to 4.38%. Yields on German and British government bonds also increased. Market expectations have risen regarding whether the U.S. can reach other trade agreements before August 1, while attention is focused on the upcoming issuance of $13 billion in 20-year Treasury bonds. The Federal Reserve is expected to maintain interest rates in the range of 4.25% to 4.5%, with a potential rate cut of 25 basis points in October
According to Zhitong Finance APP, on Wednesday, U.S. Treasury bonds ended a five-day rising trend as safe-haven demand weakened following a trade agreement between the U.S. and Japan. The yield on the U.S. 10-year Treasury bond rose by 3 basis points to 4.38%, ending a week-long decline. The yield on the German 10-year Treasury bond increased by 3 basis points to 2.62%; meanwhile, after the issuance of 15-year bonds, the yield on the UK 10-year Treasury bond rose by 5 basis points to 4.62%.
Expectations are growing regarding whether the U.S. can reach other trade agreements before the self-imposed deadline of August 1. Traders will also pay attention to the upcoming issuance of $13 billion in U.S. 20-year Treasury bonds, as long-term bonds globally are increasingly scrutinized due to fiscal issues, making this issuance particularly sensitive. The bid-to-cover ratio for the previously issued 40-year Japanese bonds hit its lowest level since 2011, while the yield on the Japanese 10-year Treasury bond rose to its highest point since 2008.
On Tuesday, U.S. Treasury Secretary Mnuchin defended Federal Reserve Chairman Powell, who faced criticism from President Trump for keeping interest rates unchanged.
According to swap trading data related to the policy meeting dates, the money market expects the Federal Reserve to maintain interest rates in the range of 4.25% to 4.5% next week. However, traders anticipate at least one 25 basis point rate cut by October, with an 80% chance of another cut by the end of the year
