Bullish indicating open at $55-$60, IPO prices at $37
Investing.com -- Bank of America (BofA) analysts highlighted concerns regarding the recent uptick in longer-term U.S. Treasury (UST) yields and the relative cheapening of cash rates to swaps. The anxiety among investors escalated following a disappointing 3-year UST auction and ahead of the anticipated 10-year and 30-year bond supply.
The market unease comes amid questions about whether the pullback in demand is attributable to foreign or domestic investors. Although real-time data is unavailable, the current macroeconomic environment, characterized by high inflation and increasing fiscal deficits, suggests that both groups could be reducing their UST holdings.
According to BofA, the demand outlook for USTs in 2025 may be compromised by these economic challenges. The recent concerns over inflation have been fueled by tariffs, while the U.S. fiscal situation seems to be deteriorating, with deficits projected to escalate significantly.
Historically, Japan and China have been major purchasers of USTs, but their demand has been waning over the past few years. BofA's analysis indicates that the combination of tariffs and a potential decrease in the U.S. trade deficit could lead to increased selling pressure from foreign investors in the medium term. Nonetheless, foreign entities may not be the sole contributors to the recent market movements.
Trading patterns reveal that USTs have generally performed well during Asian trading sessions since the end of March, with selling pressure concentrated during New York trading hours. Additionally, the depreciation of the Chinese yuan against the U.S. dollar over the past week does not align with the typical behavior of reserve managers divesting from USTs.
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