Zhitong Financial APP learned thatCasinoholdemGuojin Securities (600109) released a research report saying that the main contradiction in US bond interest rates returned to fundamentals and Fed policy, focusing on the disturbance of inflation stickiness to the pace of Fed interest rate cuts. Looking back, raising interest rates is still a small probability event, the US economic recovery is facing the challenge of high interest rates, and there is still great resistance for US bond yields to break through their highs in the third quarter of last year. At the Fed's interest rate meeting in May, Powell hinted that the Fed was unlikely to raise interest rates again, allaying market concerns about the Fed raising interest rates again. However, the postponement of the time point of interest rate reduction may lead to the challenge of high interest rates in economic repair throughout the year, and some important indicators such as PMI and employment in the United States show signs of weakening in stages.
The main points of Guojin Securities are as follows:
U. S. Treasury refinancing meeting neutral pigeon, as scheduled to suspend the issuance of U. S. debt auction. This year, the fiscal revenue and expenditure of the United States have improved, the deficit may fall slightly, and the contradiction in the supply of US debt has continued to ease. The principal contradiction of US debt interest rates returns to fundamentals and Fed policy, focusing on the disturbance of inflation stickiness to the pace of Fed interest rate cuts.
Incremental information for the second quarter refinancing meetingCasinoholdem? Neutral dove faction, start buyback, there are no plans for additional issuance in the future.
The tone of the US Treasury's second-quarter refinancing meeting is neutral and partial to "pigeon". The meeting suspended the issuance of US debt auctions as scheduled, and the Treasury said it would not increase the size of interest-bearing debt auctions in the next few quarters and announced the start of a buyback operation at the end of May. Similar to the first quarter, the Treasury is more optimistic about the economy, but its concerns about consumption are rising, and given that the household savings rate is already at an all-time low, it believes that US consumption growth may not be sustainable.
The Ministry of Finance raised the net issuance of treasury bonds in the second quarter and may be lower than the same period last year in the third quarter. The Ministry of Finance plans to borrow 243 billion yuan of treasury bonds in the second quarter, up $41 billion from January this year, mainly because tax revenue is lower than the Ministry of Finance expected. It is planned that net borrowing rebounded to 847 billion in the third quarter, with a seasonal high in bond issuance in the third quarter, but net issuance in the third quarter of this year is expected to be still lower than last year, and supply-side pressure may be difficult to reach the level of the same period last year.
Can the supply pressure of US debt be eased? the fiscal deficit fell slightly in 2024, QT slowed down, and buybacks were launched to ease the pressure.
On the revenue side, US fiscal revenue may improve significantly in 2024. Total financial revenue is expected to rise to 4.Casinoholdem.9 trillion US dollars, an increase of about 11%. The main reasons for the improvement in US revenue are as follows: first, the IRS has extended tax returns in California and other disaster-affected areas to 2024.CasinoholdemSecond, US stocks rose 40 per cent in 2023, which is expected to boost this year's resident capital gains tax; third, the threshold increase in 2024 is lower than last year because of falling inflation.
On the spending and deficit side, the US deficit ratio is expected to fall from 6.3 per cent to 5.9 per cent. According to the formal appropriation and Foreign Assistance Act of 2024, total fiscal expenditure in 2024 may rise to 6.6 trillion US dollars from 6.1 trillion US dollars last year. Discretionary spending is expected to rise to 1.8 trillion, and statutory spending to 4.8 trillion. Due to a higher improvement on the revenue side, the deficit ratio is expected to fall slightly to 5.9% in fiscal 2024, with a deficit of $1.69 trillion, slightly lower than last year's level.
How is the demand and pricing of US debt? There is no obvious deterioration on the demand side, and the risk of rising again is relatively limited.
The demand side of US debt is relatively stable, with an increase in net purchases by domestic institutions. Since the second half of last year, the net purchases of US Treasuries by US money market funds and overseas departments have increased, while the total net inflow has not declined significantly during the period of high US bond yields. As of April, demand for US debt auctions was also stable, with bid multiples not falling sharply, with indirect bidders and direct bidders allocated 62 per cent and 14 per cent respectively, both higher than the average of 55 per cent and 13.6 per cent since 2008.
The rise in US bond yields this year is mainly driven by fundamentals, with a low contribution from the maturity premium, which is significantly different from that in the third quarter of last year. Since the beginning of this year, the 10-year US Treasury yield has risen from 3.9 per cent in early January to 4.7 per cent at the end of April, rising by about 80BP, but the maturity premium is still negative. Short-term interest rate expectations are the main driver of the rise in US bond interest rates, indicating that economic fundamentals (real growth and inflation expectations) are the key variables affecting the pricing of US debt this year.
Looking back, raising interest rates is still a small probability event, the US economic recovery is facing the challenge of high interest rates, and there is still great resistance for US bond yields to break through their highs in the third quarter of last year. At the Fed's interest rate meeting in May, Powell hinted that the Fed was unlikely to raise interest rates again, allaying market concerns about the Fed raising interest rates again. However, the postponement of the time point of interest rate reduction may lead to the challenge of high interest rates in economic repair throughout the year, and some important indicators such as PMI and employment in the United States show signs of weakening in stages.
Risk tips: escalation of geopolitical conflicts; Fed increases in long-term neutral interest rates; marginal contraction of financial conditions