Head of Fixed Income Strategy
As bond markets experience a widespread sell-off across various tenors, the US Treasury is gearing up to auction $13 billion worth of the infamous 20-year bonds (US912810TZ12) on Wednesday.
The 20-year maturity stands out due to its notorious illiquidity within the US yield curve. Reintroduced in May 2020 during the Covid pandemic to bolster the US Treasury's debt-raising efforts, it had been discontinued in 1986. This explains why it offers a substantial yield pick up over 30-year bonds, approximately 10 basis points higher.
Let's delve into the advantages and drawbacks of the upcoming 20-year US Treasury auction to ascertain whether weak bidding metrics might accelerate the uptick in yields.
US 20-year Treasury yields are currently trading around the 0.618 retracement at 4.88. The trend is bullish supported by RSI indicating 20-year yields are likely to move higher towards the 0.786 retracement and resistance area at around 5.05-5.20. To reverse this bullish trend a close below 4.42 is required. (Courtesy of Kim Cramer Larsson)
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2024: The wasted year
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
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With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
