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Why is the US bond market so strong? The secret of overseas demand and short hibernation is revealed!
Wonderful introduction:
Optimism is the line of egrets that are straight up to the blue sky, optimism is the ten thousand white sails beside the sunken boat, optimism is the lush grass that blows with the wind on the head of the parrot island, optimism is the falling red spots that turn into spring mud to protect the flowers.
Hello everyone, today XM Foreign Exchange will bring you "[XM Foreign Exchange Official Website]: Why is the US bond market so strong? The secret of overseas demand and short hibernation is revealed!" Hope it will be helpful to you! The original content is as follows:
The U.S. bond market has shown amazing resilience recently, and the market remains calm despite many concerns such as inflation, tariffs, debt burdens and Fed independence. What exactly supports the world's largest and most important bond market? This article will thoroughly analyze the current situation of the US bond market, reveal the reasons behind the surge in overseas demand and short-selling retreat, and explore the possibility of future market trends.
U.S. bond market unexpected calm
The loss of power in the bond market
The so-called "bond market volunteers" refer to investors who restrict government overspending by pushing up borrowing costs. They briefly made waves earlier this year, driving bond prices to fall and yields to rise. However, as the middle of the year, these volunteers seemed to have stopped and the market returned to peace. As of July 23, the 10-year U.S. Treasury yield closed at 4.34%, down from the year-to-date average of 4.40%, and is only less than 10 basis points higher than the average a year ago and two years ago. This stability is surprising, especially in the context of inflationary pressures, tariff disputes and widening deficits.
Volatility hit a record low of three and a half years
What is even more surprising is that the implied volatility in the US bond market has dropped to its lowest level since January 2022. This suggests that investors' concerns about the imminent surge in borrowing costs are fading. Why is the market so calm? Are investors too optimistic about the economic outlook, or are there other hidden information? The answer may be hidden in the dynamics of global capital flows.
Strong support from overseas demand
Rich returns attract global capital
One of the important reasons why the US bond market can maintain resilience isA significant recovery on the demand side. The current higher yields are extremely attractive to investors, especially for institutional and individual investors seeking stable returns. In addition, concerns about a global economic slowdown have further boosted demand for U.S. bonds as investors expect interest rates to fall, thereby pushing bond prices up.
Foreign investors flocked in
According to the latest international capital flow data released by the U.S. Treasury Department, foreign official and private sectors net purchases of US government bonds reached US$146.3 billion in May, setting the second highest single-month record. If corporate bonds, institutional bonds and stocks are included in the statistics, the total amount of US securities purchased by foreign investors that month hit a record high. Among them, private investors account for about 80%, showing the strong interest of private capital in US debt. In recent years, the scale of US debt held by foreign private investors has exceeded official institutions, reaching US$5 trillion, while the official department holds US$4 trillion, and this trend is still accelerating.
Long-term trend of overseas demand
The surge in overseas demand is not a short-term phenomenon. Foreign investors' favor for U.S. bonds stems from their unparalleled liquidity and security. In contrast, the government bond markets in other major economies are far smaller than those in the United States. For example, the U.S. Treasury market is close to $30 trillion, exceeding the xm-links.combined size of the government bond markets in China, Japan, France, the United Kingdom and Italy, and ten times that of the German Treasury market. This irreplaceable market position makes U.S. bonds the first choice of safe-haven asset for global investors.
Why did the bears stop?
The game between economic trends and exogenous factors
The resilience of the back end of the US Treasury yield curve depends partly on the performance of the US economy. If the economy continues to slow, investors' expectations of low interest rates will further boost bond demand. However, some exogenous factors may also stimulate demand in the future. For example, regulatory changes in the U.S. banking system may prompt more institutions to hold U.S. bonds, and the accelerated adoption of stablecoins may also indirectly increase demand for U.S. bonds, as many stablecoins use U.S. Treasury bonds as reserve assets.
The hidden worries of shorts are not over
Although the current market is calm, shorts in bond markets still have reason to be bearish. It is expected that the United States will issue up to $1 trillion in new bonds by the end of this year, which will undoubtedly put pressure on the market. In addition, tariff policies, geopolitical tensions and the continued expansion of fiscal deficits may push up yields in the future. However, the market performance in the first half of the year showed that the selling wave in the bond market is often difficult to last, and investors seem to be accustomed to these uncertainties.
The unique position of the US bond market
Irreplaceable global hegemony
The scale and liquidity of the US bond market make it the cornerstone of the global financial system. Whether as a safe-haven asset or an investment vehicle, U.S. bonds lack real alternatives around the world. In contrast, the bond markets in other countries are unable to match both in size and depth. This unique position is the US bond marketThe market provides strong demand support, and the market can quickly restore balance even when bears are about to move.
Future uncertainty and opportunities
Looking forward, the performance of the US bond market will still be affected by multiple factors. The global economic situation, monetary policy trends and geopolitical situation may bring new fluctuations to the market. However, strong overseas demand and the irreplaceable position of the market mean that the US bond market will remain resilient in the short term. The bond market volunteers may temporarily retreat behind the scenes, but their influence has not xm-links.completely disappeared, and future market trends are still worth paying close attention.
Summary: The Secret Behind Resilience
The calm of the US bond market exceeded expectations, and the surge in overseas demand became the key support. Whether it is the enthusiastic participation of private investors or the irreplaceable market position of US debt, the efforts of the volunteers in the bond market seem futile. Although bears still have reason to be bearish, the current market resilience suggests that there is a lower chance of a sharp sell-off in the short term.
The above content is about "[XM Forex Official Website]: Why is the US bond market so strong? The secret of overseas demand and short hibernation is revealed!", which was carefully xm-links.compiled and edited by the editor of XM Forex. I hope it will be helpful to your trading! Thanks for the support!
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