Signs indicate that as long-term U.S. Treasury yields continue to fluctuate near the key psychological threshold of 5%, traders affected by the sharp drop in long bonds seem to be becoming more pessimistic; a trader survey released by JPMorgan on Wednesday shows that investors expect the U.S. Treasury selling to intensify further, leading to ongoing increases in yields in the $29 trillion U.S. Treasury market.
According to financial news on May 29 (Editor: Xiaoxiang), signs indicate that as long-term U.S. Treasury yields continue to fluctuate near the key psychological threshold of 5%, traders affected by the sharp drop in long bonds seem to be becoming more pessimistic.
A trader survey released by JPMorgan on Wednesday shows that investors expect the U.S. Treasury selling to further intensify, leading to ongoing increases in yields in the $29 trillion U.S. Treasury market.
The survey shows that the direct short positions of all clients, including central banks, sovereign wealth funds, long-term investors, and speculative traders, have currently climbed to the highest level since mid-February.
Due to growing concerns among investors about the widening government fiscal deficit, global long-term bonds have recently experienced significant declines, and this bearish sentiment has continued to grow.
$U.S. 30-Year Treasury Bonds Yield (US30Y.BD)$ On Thursday, the latest hovered around 4.98%, having once surged to 5.15% the previous week—this is also the highest level since October 2023. This round of volatility occurred against the backdrop of the United States losing its AAA credit rating, a severe sell-off in Japan's ultra-long Bonds, and the House of Representatives passing Trump's 'Beautiful American Plan.'
Although the global bond market rebound on Tuesday led to some easing of benchmark yields, the poor performance of the 40-year Japanese government bond auction on Wednesday once again raised market selling sentiment. At the same time, the back-and-forth fluctuations of the 30-year U.S. Treasury yield near 5% also indicate that investor sentiment remains volatile.
This uncertainty is also evident in the options market: Traders are paying higher premiums to hedge against the ongoing selling risk of long-term Treasury Futures than to hedge against rebound risks.
"A phenomenon of steepening yield curves has appeared globally," said Leah Traub, a portfolio manager at Lord Abbett & Co. "While there are many different nuances, one thing is common: as supply increases, demand for long-term securities is also decreasing. This will put pressure on the long end of all these yield curves.
It is worth mentioning that the results of the $70 billion U.S. five-year Treasury auction held on Wednesday showed good overseas demand, temporarily alleviating concerns about investors potentially withdrawing from dollar assets due to fears about fiscal sustainability and recent tariff-related fluctuations. The winning bid rate for this auction was 4.071%, lower than the yield in the secondary market at the time of the bidding cut-off, with so-called "indirect bidders," including foreign central banks, purchasing 78.4% of this auction.
However, the excellent performance of the mid-term bond auction may not be enough to completely alleviate concerns about demand for long bonds. On Thursday, the U.S. Treasury will also auction $44 billion in seven-year Treasury bonds, which will again test the market's demand for U.S. Treasuries.
There are also many important central bank officials' speeches and economic data on Thursday. Federal Reserve officials scheduled to speak later today include Richmond Fed President Barkin, San Francisco Fed President Daly, and Chicago Fed President Goolsbee; the revised U.S. first quarter GDP data to be released on Thursday may show a contraction of 0.3% in the U.S. economy for the first quarter. Other economic data to be released include last week's initial jobless claims and April home sales data.
Editor/rice