On October 21, the US Treasury bond market experienced significant volatility, with prices of Treasury bonds across various maturities plummeting, and the mid-to-long end of the yield curve showing exaggerated double-digit single-day basis point increases. This occurrence has raised doubts in the market about whether the current phase indicates an impending interest rate reduction cycle.

Despite the Federal Reserve's implementation of a 50 basis point rate cut in September, some Wall Street institutions project that the 10-year US Treasury bond yield is poised to surpass the 5% threshold next year. Arif Husain, Chief Investment Officer of Fixed Income at T. Rowe Price, stated in his research report that rising inflation expectations and concerns over US fiscal expenditures are key factors that could potentially drive the benchmark 10-year US Treasury bond yield towards the critical level of 5%.

Husain suggests that the 10-year US Treasury bond yield is likely to test the 5% threshold within the next 6 months, resulting in a steeper yield curve. He predicts that even with minor rate cuts by the Federal Reserve, the 10-year US Treasury bond yield could once again exceed 5%. This projection, which deviates from the widely expected rate reduction cycle, has garnered significant attention in the market.

During trading on October 21, yields on Treasury bonds of various maturities experienced notable increases. Specifically, the 2-year Treasury bond yield rose by 8.1 basis points to 4.044%, the 5-year Treasury bond yield increased by 11 basis points to 3.998%, the 10-year Treasury bond yield surged by 11.3 basis points to 4.205%, and the 30-year Treasury bond yield climbed by 10.8 basis points to 4.505%.

Recent statements from Federal Reserve officials have had a significant impact on the market. Several officials adopt a cautious stance towards further rate cuts, advocating for a deceleration in the pace of rate reductions, considering the economic uncertainty, and supporting a "gradual" approach to rate cuts.

Moreover, investors should remain vigilant concerning geopolitical tensions in the Middle East and the US presidential election on November 5, as these factors could potentially trigger inflation once again, posing a threat to the Federal Reserve's rate reduction trajectory. Analysts at JPMorgan Chase posit that as the yield curve continues to steepen, long-term yields may further ascend.

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