Author丨Chen Zhi.
Editor丨Li Yumin.
Source丨Visual China.
With the end of the Fed's rate hike cycle (for details, click here: Major Fed Decisions: Pause!RMB, ** soared),More and more Wall Street capital is betting on a sharp recovery in US Treasuries.
Last Friday, TMF, a triple long U.S. bond ETF owned by ** company Direxion, received 2$0.5 billion in net inflows, setting a record for the highest net inflows in a single day.
Behind this, not only Wall Street financial markets generally believe that the Fed's rate hike cycle is over, but they are also betting that the Fed is likely to cut interest rates soon, causing US Treasury bonds to **further** and US Treasury yields to fall sharply. A Wall Street hedge manager told reporters.
The market's frenzied pursuit of U.S. Treasuries is also reflected in the U.S. Treasury issuance market this week.
In the early morning of December 13th,The U.S. Treasury Department completed a $21 billion U.S. Treasury bond issuance raising at a winning interest rate of 4344%, a sharp drop of 42 from the winning interest rate of U.S. bonds in the same period in November5 basis points and 4 below the pre-issuance rate347%。
Behind this, more and more capital has begun to rush to buy U.S. Treasury bondsThe bid multiple for the U.S. Treasury bond auction reached 243, the highest level since September and also higher than the average of the last six times 240 times.
The current market environment is very different from two months ago - more and more Wall Street investment institutions have begun to discuss that the Fed is likely to cut interest rates in March next year, which directly triggers the market's expectations for U.S. bonds*** to further rise, which in turn leads to a rising tide of U.S. bond buying. The above-mentioned Wall Street hedge ** manager said bluntly.
At present, the latest trading data in the U.S. interest rate swap market shows that more and more Wall Street investment institutional traders are betting that the Federal Reserve will pull the trigger for interest rate cuts as early as March next year.
Mohamed El-Elian, chief economic adviser at Allianz, said that a growing number of investors believe that the US economy will slow down enough to allow interest rate cuts next year, which is leading to a major shift in market expectations, although this shift seems to have gone too far.
The latest data shows thatAs of 18:00 on December 13, the yield on the 10-year Treasury note has fallen to 4193%, a sharp drop of more than 90 basis points from a month ago.
In the face of Wall Street capital's frantic bets that the Federal Reserve will soon cut interest rates and the US Treasury ** will rebound sharply, many investment institutions also have different opinions.
Stephen Miran, manager and founder of Amberw E Partners, believes that if the Fed believes that financial conditions have been "loosened" excessively, there is always a way to take a more forceful approach to suppress market hopes of a rate cut. If this happens, it could cause Treasury yields to bottom out.
Xu Zhongxiang, the founder of Ruilian Jingchun, said bluntly in an exclusive interview with this reporter that although the Wall Street financial market generally believes that the Fed's interest rate hike cycle has ended, there are still big differences among Wall Street investment institutions around when the Fed will cut interest rates - some Wall Street investment institutions are "cautious" about the Fed's interest rate cut soon, because according to some unwritten convention, the Fed is likely to put the interest rate cut cycle after next year.
In addition, the current U.S. job market remains relatively strong, resulting in a wage-inflation spiral** pressure, which also makes the Fed dare not rush to pull the trigger for interest rate cuts. He analyzed to reporters.
In Xu Zhongxiang's view, the current U.S. job market still presents some peculiar scenes, such as some people still choose to work from home after the epidemic, resulting in U.S. companies having to increase manpower to complete business operations, which drives the job market to continue to be hot, which also makes U.S. inflation more sticky.
In the early morning of December 13, the latest economic data released in the United States showed that the core CPI excluding food and energy costs increased by 03%, an increase of 01 percentage point, and the core CPI in November was **4% year-on-year for the second consecutive month. This suggests that the journey for US inflation growth to fall back to the 2% target is still full of bumps, and the market feels that the Fed may still maintain the current high interest rates for longer, and the expectation that the Fed will cut interest rates soon may be wrong.
However, this economic data does not seem to affect Wall Street capital's enthusiasm for buying US Treasuries.
The above-mentioned Wall Street hedge manager told reporters that another important reason why Wall Street investment institutions still ignore the month-on-month recovery data of the core inflation rate and continue to buy U.S. bonds is that the short positions in the U.S. bond market were too large before. In this case, they can get a higher return on investment by simply pushing up the U.S. Treasuries** and forcing more and more short positions in U.S. Treasuries to "cover the short and stop out".
This is also one of the fundamental reasons why the current highly leveraged long U.S. bond ETFs such as TMFs can attract a large influx of funds. He said bluntly.
The reporter also learned that another factor that triggered the wave of Wall Street investment institutions to buy U.S. bonds is that more and more investment institutions believe that it is difficult for the U.S. economy to achieve a "soft landing" in a high-interest rate environment. Once the U.S. economy experiences a substantial recession, the popularity of U.S. Treasuries as a safe-haven asset will rise suddenly.
Mohammed El-Elian warned that the Fed is still warning investors that it is too early to pivot to rate cuts. Even if investors are right in their expectations of a slowdown in the U.S. economy in 2024, their rate cuts will only happen if the economy falls into a recession. He expects the Fed to continue to be cautious in its monetary policy pivot going forward.
Goldman Sachs strategist PR**Een Korapaty released the latest report pointing out that the market expects the Fed to cut interest rates by 125 basis points in the next 12 months and at least 50 basis points by the end of June next year, but Goldman Sachs' Fed rate cut expectations are much more conservative, Goldman Sachs believes that the Fed will only cut interest rates once in 2024, with a rate cut of 25 basis points.
He even believes that the current financial market is too "optimistic" about the size of the Fed's rate cut next year, which instead gives options traders the opportunity to profit from the reverse investment - Goldman Sachs strategists recommend selling SOFR 95 expiring in June 202425 call options, making a profit by counterparty trading with investment institutions that are betting on the Fed to cut interest rates soon.
Xu Zhongxiang told reporters that given that the Fed will maintain the current high interest rates for a longer period of time, the downside risk of the U.S. economy next year will be higher than that of a "soft landing". In this case, more and more Wall Street investment institutions have begun to adjust the fundamental quantitative investment model, and pay more attention to the role of low volatility factor, value factor, and quality factor of listed companies in the investment model. Dealing with potential recession risks in the U.S. economy.
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Editor of this issue: Li Yutong, Xi, Song Jiayao.
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