By Sarupya Ganguly
BENGALURU (Reuters) – U.S. Treasury yields will rise sharply over the coming month above or equal to previous calls on the debt ceiling, analysts polled by Reuters said. deadlock. The .4 trillion U.S. debt ceiling has caused bond market volatility to rise sharply.
Half of 50 respondents on May 5- A Reuters poll said the risk of a default was higher this time around than in previous episodes of debt ceiling brinkmanship. The rest said the risk was the same.
Past standoffs usually lead to last-minute arrangements, but in 2023 top-notch US credit ratings were downgraded for the first time. However, analysts warn that the current situation could be riskier due to widening political divisions.
Meanwhile, heightened fears of a default will push U.S. Treasury yields higher. U.S. 2-year and 10-year Treasury yields are expected to rise about 86 over the next month ) and 10 basis points, the poll showed.
Ask 10 what is the range of the annual rate of return, currently it is 3.20%, will be trading in the next month, the median response of strategists surveyed was 3.31%-3.50%. Individual responses ranged from as low as 3.0% to as high as 4.0%.
“The balance of risks has shifted decisively negative this week, with the Treasury secretary setting a June 1 deadline for the debt ceiling, while strains in regional banks continue to weigh on markets” JP Morgan Chase U.S. rates strategist Phoebe White pointed out.
– Gap measures can get enough votes. “
Uncertainty over whether the debt ceiling will be raised on time, as well as lingering concerns surrounding small and mid-sized U.S. banks, have given the Treasury market a volatile year.
Yields on short-dated Treasury bills (most sensitive to debt ceiling concerns) and the cost of insuring against a US sovereign default have both spiked in recent weeks.
Move index, the most followed bond market volatility gauge Currently approximately 50% above its long-term average.
Looking ahead, the US 2-year Treasury yield is expected to fall sharply to 3 .20% currently 3.86% to 4 months2024 , still slightly higher than 38 1-year Treasury yields.
Financial markets are pricing in at least 86 bps rate cut by the Federal Reserve 2023 by the end of the year, suggesting a resilient economy and strong labor market will succumb to recession this year.
But Fed on Zhou signaled a pause in one of the most aggressive tightening campaigns in its history, defying speculation that a rate cut would be considered soon as inflation remained more than double the 2% target.
“The key question for the second half of the year is whether the bond market is correct in its assumption that the Fed will be forced to reverse policy and bring forward multiple rate cuts 2023,” said Steven Ricchiuto of Mizuho Securities. actual. ”