In Treasury reports made public on Tuesday, a notable decline was observed in U.S. Treasury yields. For example, the 2-year Treasury yield was down by almost one basis point at 4.282%. Similarly, the 10-year Treasury yield came down by over two basis points at 4.392%.
In search of investment strategies to secure assets, investors flooded the bond market, increasing the demand and price of Treasury bonds. However, bond yields have an inverse relationship with prices and interest rates. For example, as the prevalent market trends of bonds reflect price increments, the U.S. Treasury yields naturally drop.
The Russia-Ukraine crisis registered a new ebb after a recent declaration from the Kremlin. It turns out that Russian President Vladimir Putin issued an official warning about the relaxing of criteria required for the deployment of the country’s nuclear arsenal. In their new stance, Russia will not hesitate to use such lethal force if under the threat of “conventional weapons that created a critical threat to their sovereignty and (or) their territorial integrity.”
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This statement comes in response to the recent clearance given to Ukraine to use U.S. weapons in attacks within Russian territorial borders. Specifically, there was a recently publicized report of the Ukrainian shelling of a Russian border city with missiles manufactured in the U.S. The Russian statement partly cites the attack on the “Bryansk region at 03:25 tonight using six ballistic missiles.”
Similar to the yield curve of government bonds and the overall bond market, the housing market also shows some negative responses to recent market trends. Economic data shows that housing construction figures for October declined month-over-month thanks to an increase in mortgage interest rates.
Other economic indicators gathered from private construction firms showed their valuation fell by 3.1% in September. The number of building permits issued in September also declined relative to the previous month. This clearly indicates that both the housing market and the building industry recently went on a downward trend.
Other economic indicators, like the S&P Global Composite PMIs, will give the U.S. government an idea of pro-business policies to expedite economic recovery. Stakeholders in the manufacturing and service sectors are betting on President-elect Donald Trump’s campaign promises to encourage tax cuts and a monetary policy that will make inflation expectations feasible.
Wall Street analysts also have their eyes peeled for Trump’s choice of Treasury Secretary. If nothing, this choice will drive sentiments on bond market investment strategies and may alter the yield curve. Investors and analysts familiar with the market will feel confident in government bonds if the Treasury Secretary has a proven record of reliability.
If Trump’s choice for Treasury Secretary is widely ruled unreliable, risk premiums might shoot up. The next administration’s prevalent poise on monetary policy will inevitably influence the outcome of inflation expectations and risk premiums in the bond market. The U.S. Treasury yields, like other economic factors, will determine the scorecard of Trump’s second term in office. Fingers are crossed that Trump will make appointments that will turbocharge the U.S. economy.