BOND

Tensions on the U.S. government bond market rose again after Wednesday's 10-year bond auction ended in disappointment. Investors are growing increasingly cautious, and the result was a sharp jump in yields — a clear signal that demand for these bonds is fading.

🚨 10-Year Yield Spikes — and Fast
The auction turned out to be a nasty surprise. The yield on the 10-year Treasury surged to 4.24%, up three basis points from the previous day. In the tense atmosphere, it even spiked to 4.28% shortly before the auction ended, before pulling back slightly.
The auction results themselves did little to reassure the market. The new 10-year bond offered a yield of 4.255%, which was 1.1 basis points above its pre-auction trading level. This discrepancy — known as the “tail” — was the largest since last year’s failed 10-year auction, which saw a tail exceeding three basis points.
🔹 What does it mean? A large tail is seen as a red flag. It suggests that investors were reluctant to bid aggressively, and the auction had to offer a sweeter deal to attract buyers. As a result, the final coupon ended up at 4.25%, higher than the anticipated 4.125%.

📉 Weak Jobs Data Fuels Bets on Rate Cuts
Ironically, despite the poor auction, 10-year yields remain near their lowest levels since December. That’s largely due to growing market expectations that the Federal Reserve will be forced to cut interest rates.
July’s labor market data fell short of expectations, and figures for the two previous months were also revised downward. This shift in labor dynamics has encouraged more traders to bet on upcoming rate cuts.
Minneapolis Fed President Neel Kashkari said on Wednesday that the U.S. economy is slowing down and that “a rate cut may be appropriate in the near future.” He still expects two rate cuts by the end of 2025. Market participants are now pricing in nearly 60 basis points of easing by December, and the odds of a September rate cut have jumped to 85%.

📆 Bond Auctions Run on Schedule – Regardless of Sentiment
No matter what’s happening in the market, Treasury auctions follow a strict calendar. That means even in times of volatility or weak economic data, the issuance continues.
This week’s auction cycle wraps up on Thursday with a $25 billion offering of 30-year bonds. Interestingly, this issuance is expected to carry the lowest yield since March.

🔍 5-Year Bonds: Star of the Yield Curve – But For How Long?
While 10-year notes grabbed the headlines, many traders are eyeing the unusual behavior of 5-year bonds. Yields on these have hovered around 3.78%, which is remarkably low compared to other maturities — especially given that the Fed's rate is far from zero.
This suggests that the belly of the yield curve — the 5-year zone — may be significantly overpriced. Goldman Sachs strategists William Marshall and Bill Zu flagged that this segment looks “rich.”
Using the so-called butterfly spread method (a valuation technique comparing different maturities), they found the spread near -100 basis points — the lowest since early 2021.
🔹 What’s the takeaway? The move reflects market expectations of fast and deep rate cuts. But Marshall and Zu warn that such pricing is likely unsustainable.

📊 Summary: Bond Market Sends Warning Signs
🔹 10-year yields spiked due to a weak auction

🔹 Investor appetite for new issuances is fading

🔹 Weak job data fuels hopes for Fed rate cuts

🔹 5-year bonds appear overpriced — butterfly spread hits multi-year low

🔹 Thursday’s 30-year auction will be a key test of investor sentiment
Although 5-year bonds have outperformed so far this year, it might be a misleading signal. If sentiment shifts, this segment could face a sharp correction. Persistent inflation and the ballooning U.S. budget deficit continue to pressure long-dated yields like the 30-year.

#worldnews , #USGovernment , #economy , #bond , #market

Stay one step ahead – follow our profile and stay informed about everything important in the world of cryptocurrencies!
Notice:
,,The information and views presented in this article are intended solely for educational purposes and should not be taken as investment advice in any situation. The content of these pages should not be regarded as financial, investment, or any other form of advice. We caution that investing in cryptocurrencies can be risky and may lead to financial losses.“

Beijing – Friday, July 25, 2025: China’s central bank made a major move on Friday, injecting 601.8 billion yuan (approximately $84 billion) into the financial system through reverse repo operations. The goal: to defuse growing panic in the bond market before it spirals into a full-blown financial crisis.
This was the largest daily liquidity injection since January, and it came as bond yields surged sharply throughout the week. The yield on 30-year Chinese government bonds had risen for seven consecutive days—until Friday, when the trend finally broke.

🔹 Market on the Edge of Panic
The situation was nearing a critical point. Selling pressure was mounting, futures tied to long-term bonds had been falling for over two years, and fears of a systemic collapse were rising fast. The People's Bank of China (PBOC) stepped in to prevent a potential chain reaction.
Two main factors have been suppressing demand: shaky trade truce with the U.S. and China’s ongoing battle with deflation. Together, they make bonds far less appealing to investors.

🔹 Redemptions Trigger Domino Effect
The pressure had been building for some time. Data showed a sharp spike in bond fund redemptions on Thursday. A key indicator tracking withdrawals from fixed-income funds hit its highest level since last October. Over the past two years, the volume of bonds held by these funds nearly doubled—meaning withdrawals now carry greater impact.
Analysts from Huatai Securities, led by Zhang Jiqiang, warned that the pressure is unlikely to ease on its own:

“Based on past experience, the bond market may face intensified stress once fund redemptions begin,” they said.

If redemptions continue, funds will be forced to sell more bonds, pushing prices even lower and triggering further exits.
They added that unless the PBOC continues injecting liquidity—either via open market operations or direct bond purchases—the situation could deteriorate further. Another option to halt the bleeding might be slowing capital flow into the stock market, which has been siphoning cash away from bonds.

🔹 Rapid Withdrawals Signal Deep Trouble
Things appear to be accelerating. Domestic funds pulled 120 billion yuan from bond positions in just three trading days through Thursday. This is not a mild correction—it’s a full-scale exit.
Local media reported that more than 90% of the 3,182 Chinese bond mutual funds tied to medium- and long-term debt posted losses between Monday and Wednesday. Meanwhile, the Finance Ministry attempted to sell new 30-year special government bonds on the primary market.
The average yield reached 1.97%, the highest since March. Investors demanded higher returns for taking on the risk—another sign of eroding trust and rising borrowing costs across the board.

🔹 Corporate Bond Market Feeling the Strain
The credit market is also feeling the pain. This week, the average yield on AAA-rated three-year corporate bonds rose by 11 basis points—a notable move in such a highly rated segment. According to the ChinaBond index, it's heading for the biggest weekly jump since February.
Unless the central bank continues to inject liquidity or introduces new measures, the bond market could face further losses. One way to ease pressure might be to cool down the stock market, which is currently drawing away investor funds.

#china , #bond , #economy , #Liquidations , #worldnews ,

Stay one step ahead – follow our profile and stay informed about everything important in the world of cryptocurrencies!
Notice:
,,The information and views presented in this article are intended solely for educational purposes and should not be taken as investment advice in any situation. The content of these pages should not be regarded as financial, investment, or any other form of advice. We caution that investing in cryptocurrencies can be risky and may lead to financial losses.“