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Question asked 03/05/2025

Bond movements

Hi guys, hope you all had a good break last week with the public holidays. Could you please explain what's been happening with U.S. bond prices lately? Do stocks prefer going off the 2's, 10's or 30's? I understand that with Trump changing his mind every thirty minutes that it upsets the balance, but one moment Stocks are following bonds, then the next it's against it. What is the current sentiment towards them. The 30's aren't far off the high yields from liberation day but not as high as the start of the year. If they were getting sold off by the likes of China and other countries, then surely the yields would be dropping and stocks would like it. If stocks were following the 2's then things would be looking good. Right now I have no idea where the smart money is going or even what is doing the leading. The elephant in the room would be a large sell to move away from USD$, which we have seen and the money going to gold; if this continues or even expands, what are the knock on effects and where do the funds go / how does the US manage such high yields? regards, Simon

Answer

Hi Simon,

A very fascinating subject at the moment, a few initial thoughts:

Like a number things with regard to stocks they almost take it in turns which duration stocks go off – when rate cuts are the hot topic its the 2’s but in general analysts value stocks and the market by using the 10s, which is generally the global benchmark for rates.
At the moment bonds are pricing in 3 or 4 rate cuts by the Fed into Christmas, any less might slow the bounce.
The main driving force on stocks at the moment is tariffs and there likely impact on the US/global economy, a slowdown is expected but not a recession.
Fears around the impact of tariffs on inflation is pushing up longer dated bond yields while the 2s year yields are down in anticipation of the mentioned cuts, hence the widening yield curve.
If China were to sell US bonds it would drive yields higher, remember the inverted relationship between price and yield – no doubt a bargaining chip for Xi Jinping.

At the moment we believe the “smart money” is doing what’s most uncomfortable to investors = buying stocks. We’ve even started quoting how far away the all-time highs are as risk appetite returns.

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US 2 v 30 Year Yields

LAST UPDATED 02/05/2025 10:41

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