On Tuesday evening Beijing Time, spot Gold continued to sink, plunging more than $30 from near $1825, falling below four major hurdles in succession and hitting a low near $1790 before the U.S. session.
This wave of violent retracement and U.S. bond yields soared related. As of press time, the 10-year U.S. bond yield stood at 1.2670, renewing a new high since March last year.
In fact, just as U.S. stocks were closed for a day on Monday for President’s Day and U.S. retail investors paused to push up low-priced stocks, the global bond market was turning upside down.
On the morning of Feb. 15 in New York, the yield on the German 10-year Treasury note rose 5 basis points to -0.382%, its highest level since June 2020.
U.S. Treasury futures prices also took a heavy hit on Feb. 14 in New York time, with long-term U.S. Treasury futures prices falling 1%, which meant the 30-year Treasury yield rose 4-5 basis points to 2.05%.
Since last August, the price of ultra-long-term U.S. Treasury futures has fallen nearly 15%.
Ten-year U.S. bonds jumped sharply at the opening of Tuesday’s morning trading, hitting a high of 1.2551%.
The spike in yields on these Treasuries has brought the size of negative-yielding bonds worldwide down from nearly $19 trillion to just under $16 trillion. However, $16 trillion in negative-yield bonds is still a huge amount.
In addition, as global bond yields spiked, the cumulative net speculative position in U.S. Treasury futures decreased, nearing a return to April 2018 levels.
So what happens next?
On Feb. 12 DoubleLine gave two key levels for U.S. Treasury yields in the new week, and the agency’s analysts at DoubleLine said it will be watching to see if the 10-year U.S. bond and 30-year U.S. bond yields can hold the 1.2% and 2.0% levels, respectively, after the markets end their break on Tuesday. For now, it looks like it’s holding.
But the big question, notes financial blog Zero Hedge, is will the Fed allow Treasury yields to continue spiking like this?
In July 2018, the 2-year and 30-year U.S. bond yield spread was 38 basis points, and the 2-year and 10-year yield spread was 26 basis points, with only 12 basis points separating the two.
But now, the 2-year and 30-year U.S. bond yield spread is 138 basis points, the highest since Jan. 10, 2017, and the 2-year and 10-year yield spread is 107 basis points, the highest since April 7, 2017.
As the gap between long and short-term bond yields continues to, unusually, widen, markets are beginning to worry: when will the Fed intervene?
In addition to the Federal Reserve, whether U.S. bond yields will continue to soar depends on the flow of investment funds, investors will shift from “expensive” stocks to invest in “cheap” bonds? If investors turn to buy bonds because of falling bond prices, that will support bond prices and inhibit further increases in bond yields.
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