Turbulence in the US Bond Market: Yields Fall Below a Key Level
The US Treasury bond market has experienced significant fluctuations this week, with the yield on the 10-year US Treasury bond dropping below the 4% psychological barrier for the first time since 2024, reaching an annual low of 3.976%. This trend has attracted widespread attention from investors and reflects growing concerns about a slowdown in US economic growth.
The decline in long-term bond yields is often seen as a signal of rising risk aversion. Since bond yields and prices move inversely, a drop in yields indicates a large inflow of funds into the bond market, with investors seeking safer asset allocations.
Weak Economic Signals Heighten Market Anxiety
Recent regional economic data has become a key factor undermining market confidence. The latest report from the New York Federal Reserve shows that the service sector activity in New York State and nearby areas contracted significantly in October. Meanwhile, the Philadelphia Fed manufacturing index fell to a six-month low. Weak data has prompted the market to reassess the resilience of the US economy, with investors reducing their exposure to risk and turning to Treasury bonds for safety.
Analysts point out that the ongoing government shutdown has caused a disruption in economic data releases, leaving the market with a lack of macroeconomic reference, further increasing uncertainty. Coupled with rising tensions in US-China relations and potential risks in the banking system, investor sentiment has turned conservative, with funds shifting from stocks and high-yield bonds to long-term Treasury bonds.
Enhanced Expectations for Federal Reserve Easing
Federal Reserve Chair Jerome Powell reiterated in a speech this week that the central bank will continue to provide policy support for the economy and hinted that the interest rate cut process is still underway. The market broadly interpreted this as a dovish signal, anticipating that the Fed will lower the benchmark interest rate again at the October meeting.
According to CME FedWatch data, traders are betting on a nearly 98% probability of a 25 basis point rate cut this month. This expectation has fueled demand for bonds, suppressing long-term yields. The market generally believes that the Fed is trying to maintain liquidity stability amid a weak economic environment and receding inflation.
Falling Inflation and Energy Prices Drive Yields Downward
Meanwhile, the continued decline in energy prices has further reinforced the downward trend in yields. US gasoline prices have dropped about 4% in the past month, leading to weaker market inflation expectations.
According to a report by Bear Traps, although official CPI data has yet to be released due to the government shutdown, the inflation swap curve has already visibly declined, indicating that market concerns about inflationary pressures are waning.
The International Monetary Fund (IMF) recently expressed a cautious outlook on US economic growth at its annual meeting, suggesting that an overreliance on consumption and fiscal spending may not sustain long-term growth. This view partially validates the market's risk-averse logic.
Investors Await Key Data Releases
Currently, investors are primarily focused on the September Consumer Price Index (CPI) data set to be released on October 24. If inflation continues to decline, it will further solidify the market's expectations for Federal Reserve easing; conversely, if the data exceeds expectations, it could trigger a short-term rebound in yields.
Garvey Research analysts believe that the recent changes in US bond yields reflect a "gradual risk aversion shift," not market panic, but rather a realistic assessment based on the continued weakening of macroeconomic fundamentals.
Safe-Haven and Policy Games to Continue Dominating the Market
Looking ahead, as economic growth slows, inflation declines, and global market uncertainty rises, US Treasury yields are expected to remain low. Analysts predict that the bond market will enter a dual pattern of "policy domination + risk aversion," with funds likely to continue concentrating on safe assets.
As one market trader put it: "The yield falling below 4% is not only a psychological threshold breakthrough but also the beginning of a global capital repricing of risk."
