Why is the outlook for U.S. Treasury yields still unclear?

Author: Casey Wagner, Blockworks; Translated by: Wuzhu, Golden Finance

The U.S. Treasury Department issued a quarterly refinancing statement this week. As Felix mentioned yesterday, officials will announce their debt issuance plans for the next quarter.

The latest statement said the Ministry of Finance will keep the auction scale stable “at least for the next few quarters.” U.S. Treasury yields fell as a result. On Friday, the 10-year Treasury yield hovered around 4.5%, while the 2-year Treasury yield rose to 4.28%.

Typically, rising yields meant a decline in stock prices, as we saw in 2022, when the 10-year Treasury yield rose above 4%, while the S &P 500 fell nearly 20% at the end of the year.

In 2023, yields have been climbing for most of the year, as have the U.S. stock market. But it is worth noting that the S&P 500 doubled its annual gains in the last quarter of 2023, when 10-year Treasury yields fell by 0.5%. 2024 follows roughly the same pattern.

Well, the history class is over. Now we're back to the present. There is no reason to think that when the yield is within the 4% range, the stock market cannot maintain its momentum, but if the yield rises too much, the fear of recession will come back and the stock market will fall.

The outlook for U.S. Treasury yields is uncertain for several reasons.

First, the Fed suspended its interest rate cut cycle, who knows how long it will last. In addition, inflation is still difficult to alleviate. Intensifying global trade tensions and higher tariffs on U.S. imports, if implemented more widely, may also have an impact on economic growth or at least on growth expectations.

Then there is the new leadership of the Ministry of Finance. Treasury Secretary Scott Bessent has bluntly stated that he was upset with the way former Treasury Secretary Yellen handled things, that she chose to use short- term notes primarily to raise funds.

To be short, everything is unresolved.