US Treasury Yields Reach Highest This Year... Investors Face Growing Dilemmas

As the anticipated timing for the U.S. Federal Reserve's interest rate cut, expected in June, has been pushed back, U.S. Treasury yields have reached their highest levels this year. Conversely, domestic investors who bet against this trend are facing increasing concerns.

According to Investing.com on the 8th (local time), the yield on the 10-year U.S. Treasury bond surged to 4.42%. On the same day, the 2-year short-term bond yield stood at 4.79%. These are the highest levels since November last year.

The Wall Street Journal (WSJ) analyzed this by stating, "Inflation is stronger than expected, and with solid job numbers, market expectations have spread that the Federal Reserve (Fed) will continue to delay the timing of interest rate cuts." The U.S. Consumer Price Index (CPI) showed a slight increase compared to the same period last year: 3.1% in January, 3.2% in February, and a forecasted 3.4% in March. Nonfarm payroll employment in March last month was 303,000, significantly exceeding the Dow Jones estimate of 200,000.

The market expects the Fed to cut rates once or twice this year at most. Alex McGrath, Chief Investment Officer at NorthEnd Private Wealth, said, "At the beginning of this year, the market was optimistic about six rate cuts, but now that the trend of persistent inflation is clear, one rate cut may be the maximum.

Domestic investors who bet on a decline in U.S. Treasury yields are distressed. Since bond prices fall when yields rise, losses are inevitable. Domestic investors typically invest indirectly by purchasing exchange-traded funds (ETFs) that track U.S. Treasury prices rather than buying foreign bonds directly.

The overseas bond-related stock that domestic investors have invested in the most recently is the "iShares 20+ Year U.S. Treasury Bond JPY Hedged ETF" (ticker 2621). It has plunged 8.8% this year, marking a particularly large decline. This is due to purchasing U.S. bonds with the depreciated Japanese yen.

Bond investors are hoping that the U.S. CPI, to be announced on the 10th, will come in lower than expected. Brad McMillan, Chief Investment Officer at Financial Network, said, "Inflation remains at a high level, but the economy is not in recession," urging caution against premature bond buying for the time being.