Bloomberg macro strategist Frank Monkam believes that US Treasuries have recently received two temporary "cushions": First, US-Japan policy coordination has stabilized the yen, reducing the risk that Japan will be forced to adjust its overseas assets and sell US Treasuries due to exchange rate pressures; second, the shift in US policy and rhetoric towards Iran has suppressed oil speculation, and the decline in oil prices has also eased the pressure of commodity inflation on long-term interest rates. Under the combined effect of these two factors, the US 10-year yield has fallen by about 10-15 basis points from its recent high of over 4.70%.
However, this is more like a "summer gift" than a long-term trend reversal. After a similar exchange rate intervention in 1998, the yen appreciated by about 7% in two days, and the 10-year US Treasury yield only fell by 15-20 basis points before returning to high-level fluctuations until the Long-Term Capital Management crisis triggered a significant decline.
Therefore, what is truly worth observing next is whether the yen and oil prices will reverse simultaneously: if the yen weakens again and oil prices rise again, it means that the two external conditions that previously suppressed long-term bond yields have simultaneously failed. Oil prices have climbed back above the 200-day moving average, and the current interest rate risk-reward ratio is shifting back towards higher yields. In other words, the recent rebound in US Treasury yields is more likely a breathing space secured by policymakers, and does not signify that long-term financing and fiscal pressures have been relieved.
