Update Bonds: Surprising US labour data

This positive surprise pushed expectations regarding the Federal Reserve’s next rate cut further out to July (instead of June) and lifted Treasury yields across the curve.

The two-year yield, which is particularly sensitive to monetary-policy expectations, moved back to above 3.5%, returning to the middle of its well-worn 3.4%–3.6% range, where it has been stuck since September. Meanwhile, upward pressure on ten-year yields persists. This reflects ongoing concerns about inflation and widening fiscal deficits, which continue to push longer-dated rates higher.

Chinese regulators signalled to domestic financial institutions that it may be prudent to scale back their holdings of US Treasuries. Officials stressed that this was based on risk management rather than geopolitics. China, once the largest foreign lender to the US government, has quietly halved its Treasury holdings since 2013. India’s holdings have also fallen to a five-year low. The broader trend is striking: foreign ownership of US government debt has declined from 50% in 2015 to just 31% today, marking a significant shift in global demand for US bonds.

In the corporate credit markets, Alphabet highlighted how aggressively large technology firms are funding their artificial intelligence ambitions by raising nearly USD 32 billion in under 24 hours across dollars, sterling and Swiss francs. This also includes an ultra-rare 100-year bond that underscores investor appetite for fuelling these investments.

Oracle has also raised capital by issuing USD 25 billion in bonds this month. Other major tech players are expected to also tap markets. JPMorgan forecasts that borrowing by large-scale cloud service providers and others in the technology, media and telecom sector could reach USD 400 billion this year. Such heavy issuance comes at a time when corporate bonds are trading at historically tight credit spreads, increasing the risk that valuations come under pressure if supply remains elevated.