Global Bond Markets Stir: U.S. Yields Dip, China Rallies, and Fed Holds Steady Amid Rate Cut Speculations

The bond market has been quite eventful in recent days. The 10-year US Treasury yield recently fell below the key 4% level, following Federal Reserve Chair Jerome Powell indicating that an interest rate cut was unlikely at the March meeting, but would likely come later this year. This caused yields to take a leg down, with the benchmark yield falling nearly 13 basis points to 3.929%. The yield on the 2-year Treasury also fell 13 basis points to 4.227%.

China’s 10 Year Bond Yield Rallies Big

Meanwhile, the yield on China’s 10-year bond yield (CBG10Y) has had its biggest rally in recent memory, prompting concerns about a potential shift in the markets. An analyst who has been involved in the Asian markets for 30 years predicts that the Hang Seng Index (HSI) could sell off hard if the CGB10Y continues to come in, and potentially fall into a heap of pain and trouble if the yield reaches 2%-2.25%.

Corporate Debt Yields Keep Falling

In the corporate bond market, yields have been falling, particularly on investment-grade debt. The average yield on new, investment-grade corporate bonds is almost a full percentage point below where it was in November, causing activity in the corporate bond market to heat up. Demand for corporate debt is strong, which means corporate issuers are taking advantage of it, and many bond buyers are entering the market because they expect yields to fall further once the Federal Reserve starts cutting rates.

BonBloxx Launches New Corporate Bond ETFs

BondBloxx has launched three ETFs that offer exposure to triple B rated corporate bonds, targeting BBB-rated corporate bonds within their respective maturity ranges. These ETFs offer a new level of precision for investors looking to target this segment of the investment-grade corporate bond market, which has historically outperformed the broad investment-grade corporate bond universe by more than 50 basis points per year with no incremental default risk.

Fed Keeps Rates Unchanged in Most Recent Meeting

In the FOMC meeting held on January 31, 2024, the committee decided to keep interest rates unchanged at the 5.25%-5.50% range, as was widely expected. The Fed also reiterated its commitment to achieving its 2% inflation target and maintaining a strong labor market.

The decision was seen as a nod to the current economic conditions, which have shown resilience despite global headwinds.

Overall, the bond market is pricing in rate cuts in the near future, with the market now expecting 147 basis points of rate cuts this year, up from 130 basis points earlier this week. The FOMC’s decision to keep rates unchanged for now suggests that the central bank is taking a wait-and-see approach, but the door remains open for future rate cuts if economic conditions warrant it.

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