Recently, the uncertainty surrounding the outlook for the U.S. economy has intensified, prompting risk-averse sentiments among investors. Consequently, U.S. stocks have continued to decline, while the U.S. bond market has emerged as a safe haven, with short-term U.S. bonds performing particularly strongly.
U.S. Stocks Plunge Amid High Risk-Aversion
Recently, weak U.S. economic data has heightened concerns about an economic recession. The Federal Reserve of Atlanta lowering its forecast for 2025's first-quarter GDP growth rate has further fueled worries about an economic slowdown.
On March 10, the three major U.S. stock indices fell sharply, with the Nasdaq dropping by 4%—its largest single-day decline since September 2022. The S&P 500 fell by 2.7%, and the Dow Jones Industrial Average was down 2.08%. On March 11, U.S. stocks continued to fluctuate downwards, ending the day in negative territory.
Overall, U.S. stocks have been under pressure since late February, with the Dow Jones Industrial Average losing over 7%, the S&P 500 over 9%, and the Nasdaq more than 13%. The sustained deterioration in market sentiment has led safe-haven funds to exit the stock market and shift towards the more secure bond market.
"Seesaw" Effect Revealed as U.S. Bonds Garner Favor
As U.S. stocks have experienced significant declines, the U.S. bond market has exhibited its safe-haven characteristics. Data shows that since late February, 2-year U.S. treasury futures have risen nearly 1%, 5-year treasury futures have gained over 1.5%, and 10-year treasury futures have climbed almost 2%.
The strong performance of short-term U.S. bonds reflects market preferences for the relatively high safety margin of short-term debts, while also indicating ongoing concerns about long-term inflation trends.
U.S. Bond Yields Fall as Rate Cut Expectations Rise
Entering the end of February, U.S. bond yields have shown significant declines. The 10-year U.S. bond yield fell from above 4.6% to around 4.3%, while the 2-year yield dropped from 4.4% to 4.1%. Analysts at Industrial Securities noted that easing concerns about inflation and debt, along with a sluggish service sector and declining consumer confidence, have caused U.S. stocks to plunge further, heightening risk-aversion and accelerating the downward trend in U.S. bond yields.
Why U.S. Bonds Are the Top Choice for Safe Haven
A study by CICC indicated that the U.S. economy is gradually heading towards a stagflation scenario. U.S. bond rates and the dollar index have begun to fall from their peaks, reflecting a change in market trading logic. Although U.S. fiscal expansion has somewhat supported economic resilience, it has also increased the government debt burden, reducing the efficiency of fiscal spending.
The U.S. federal government's deficit is at its third-highest level historically, with net interest expenses surpassing defense spending to become the third-largest fiscal expenditure item. Against this backdrop, doubts about the sustainability of U.S. economic growth persist, drawing substantial inflows of safe-haven funds into U.S. bonds due to their relative stability.
In addition, the gradual implementation of economic policies under the Trump administration, including measures for fiscal expansion and contraction, may further exacerbate stagflation risks, prompting greater caution regarding the long-term economic outlook.
Looking Ahead, U.S. Bonds Continue to Gain Attention
As anxieties over the U.S. economic outlook persist, the safe-haven value of the U.S. bond market will continue to attract investors. Analysts believe that if U.S. stocks remain under pressure, U.S. bond yields may further decline, while expectations for Federal Reserve rate cuts may increase gradually. In the coming months, the U.S. bond market's performance will be closely tied to U.S. stock performance and macroeconomic data, becoming a focal point for market attention.
