"US 10-Year Treasury Yield Falls Below 4.3% in April... June Rate Cut Still Valid"

[Image source=Yonhap News]

원본보기 아이콘

Kiwoom Securities recommended purchasing domestic bonds when domestic bond yields rise due to the increase in U.S. Treasury yields on the 4th. This is based on the judgment that the possibility of a rate cut in June is still valid.

Ahn Yeha, a researcher at Kiwoom Securities, stated, "We expect the 10-year U.S. Treasury yield to fall below 4.3% again in April, and the 3-year Treasury yield to also return to around 3.2%."

Recently, the 10-year U.S. Treasury yield surpassed the 4.4% level intraday, exceeding the psychological ceiling of 4.3%. The rise in yields is largely due to the U.S. ISM Manufacturing Index exceeding the baseline of 50 for the first time in 17 months. Both sub-indicators, new orders and production indices, surpassed the baseline of 50, showing an improvement in demand. The inflation indicator also rose to 55.8, up 3.3 percentage points from last month, increasing inflation concerns.

Researcher Ahn analyzed, "As U.S. economic expansion is expected, the perception that the Federal Reserve (Fed) has less need to cut rates has emerged, and Fed officials have shown a cautious attitude toward the first rate cut, causing the 10-year U.S. Treasury yield to surge."

However, Ahn diagnosed that the possibility of a rate cut in June remains valid. This is based on the judgment that inflation factors are more significant than growth factors for rate cut conditions in the current economic situation.

Ahn explained, "If inflation declines due to a slowdown in the service sector without a sharp deceleration in growth, it can be interpreted that the Fed's rate cut conditions are met. Considering this, the recent weakening of Fed rate cut expectations due to the improvement in the U.S. ISM Manufacturing Index and the resulting rise in yields are somewhat excessive."

He added, "In the short term, inflation concerns due to supply factors from rising international oil prices may slow the decline in inflation, but ultimately, the important factors are the slowdown in wage growth in the labor market and the deceleration of service prices. Robust growth itself is not a factor that undermines the conditions for a rate cut," he emphasized.

© The Asia Business Daily(www.asiae.co.kr). All rights reserved.