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Bond Yields Continue on Their Bullish Run

Miguel A. Rodriguez
Miguel A. Rodriguez
28 September 2023

Treasury bond yields continue to surge as the stock market declines. Investors were surprised to see the US Consumer Confidence data showed a downward trend and are now awaiting the PCE data tomorrow.  

Bond yields driven to levels not seen in decades

Yesterday's stock market slump was in line with the trend of recent days while Treasury bond yields resumed their upward trend. This is the scenario the marketplace has been witnessing lately.

Bond yields are at levels not seen in decades as a result of the almost certainty that the Federal Reserve (Fed) will maintain high interest rates for a considerable amount of time. Some analysts predict that the 10-year American bond will rise above 5% from its current price of 4.55%.

It is clear that this has an unfavourable effect on how businesses are valued, particularly those that are most dependent on finance for their investments, such technology companies.

US Consumer Confidence data showed a downward trend

Although up until recently the macroeconomic data had not been impacted and had instead shown strength, the Fed's strict monetary policy is expected to have a negative effect on the economy. However, some data is already starting to be released that shows a certain weakening. This is the case of the Consumer Confidence data that surprised downwards and could be the first indication of a decline in domestic demand and ultimately aligns with the Fed's goal in combating inflation.

US 2Q GDP and PCD data in focus

Today's release of the final 2Q GDP figures for the US could have an effect on the economy if the number turns out to be different from what analysts estimate. The Personal Consumption Expenditure (PCE) data, that will be released tomorrow, will be more important since it is the metric that the Fed prefers to measure inflation and therefore has the potential to significantly affect market interest rates.

After the release of crude oil inventory data revealed a reduction greater than the market expected, oil prices continued to rise and hit their highest level since August of last year. This is evidence that the performance of oil does not help to reduce inflation.

In this scenario of high interest rates in the US, the US Dollar is not taking a break in its upward race.

USD/JPY is close to high levels last reached a year ago

USD/JPY is already close to its highest levels reached in October 2022 despite repeated attempts by the Japanese authorities to stop this trend with verbal interventions. Currency traders expect that the Bank of Japan will sell US Dollars on the market sooner or later to stop the Yen's decline.

USD-JPY monthly chart 28.9.2023.png

USD/JPY monthly chart, September 28, 2023. Source: WebTrader.

Key Takeaways

  • The stock market declined yesterday.
  • Treasury bond yields surge at levels not seen in decades.
  • Consumer Confidence figures surprised downwards.
  • The US GDP for the second quarter will be published today.
  • The US PCE data is expected to be released tomorrow.
  • Oil prices continue to rise, reaching the highest level since August last year.
  • The US Dollar continues to rise.
  • The USD/JPY pair is close to its highest levels reached in October 2022.

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Sources: Bloomberg, Reuters 

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Miguel A. Rodriguez
Miguel A. Rodriguez
Financial Writer

Miguel worked for major financial institutions such as Banco Santander, and Banco Central-Hispano. He is a published author of currency trading books.