The yield on the 10-year Treasury note fell below 3.9% from its previous peak of more than 5%. As a result, the interest rate differential between China and the United States has narrowed rapidly and is now only about 1.2%, compared with a peak of nearly 2.3%.

The institutions interviewed generally believe that with the expected rate cut of about 140BP next year, the rapid downward phase of US bond yields may have passed, and the huge deficit of the US government may dominate the bond market again next year. At the same time, the yield of Chinese government bonds is difficult to rise significantly for the time being, and the interest rate spread between China and the United States may remain in a relatively stable range in the near stage.

The yuan (7.1441, 0.0059, 0.08%) peaked at 7.08 against the US dollar last week, and the US dollar also weakened, and institutions began to raise the RMB exchange rate forecast for 2024. For example, UBS expects USD/RMB to be 7.0 by the end of 2024 (previously forecast 7.15).

Interest rate differentials between China and the US will stabilise after a rapid narrowing

Since the Fed hinted that implied interest rates may be peaking, there has been a frenzied buying of bonds around the world, which has pushed yields down rapidly.

Goldman Sachs 'forecast has been sharply adjusted, and the latest forecast is that the Federal Reserve will make three consecutive 25BP rate cuts in March, May and June next year, and then cut interest rates every quarter until the terminal rate of 3.25% to 3.5%. Last week, Goldman Sachs also believed that the first rate cut will start in the third quarter of next year. Since Thursday's meeting, the yield on the 10-year Treasury has plunged nearly 30BP. Bond yields and prices move inversely.

The trend in the iShares 20+ Year Treasury ETF (ticker symbol TLT) also shows how strong the reversal in long-term U.S. bonds has been. TLT entered a bull market from its recent lows, climbing more than 20 percent, and the rally brought the ETF back to its 50-week average, close to $99, after falling to $80 during the bond market rout, nearly halving its two-year high, when the 10-year Treasury yield soared above 5 percent, sparking a sell-off in risky assets.

However, follow-up agencies expect that it is difficult for US bond prices to climb significantly, range-bound or major trends. "The bulls have not made much progress at this level in the past two years, and coupled with the $99 resistance, this level is considered the first real technical test for bond bulls in the near term, in other words, it may be difficult for Treasury yields to fall much further in the near term." David Scutt, senior strategist at Gain, told reporters that any disinflation, soft landing narrative is likely to trigger a modest yield reversal.

In addition to inflation data, "few people will be aware that the US Treasury will auction new 20-year bonds on Wednesday, after several rounds of auctions have not been good, and it is not clear whether bulls will rush to buy these bonds after earlier concerns about the US deficit." And yields are now well below where they were two months ago - they've fallen more than 110 basis points." Scott said.

In fact, the reason for the surge in long-end US bond yields in November was partly due to the issuance of long-end bonds, and the imbalance between supply and demand led to the rise of long-end bond yields. First Finance previously reported that in the four months after the suspension of the debt ceiling in June, the size of US national debt increased by more than $1 trillion, and the total size reached a record high of $33 trillion. And with about $7.6 trillion of low-interest debt expected to mature in the next 12 months, the Treasury will inevitably continue to issue massive amounts of debt.

However, Johanna Kyrklund, CIO (chief investment officer) of Schroders Investments, said in a recent interview with First Finance that the main driver of US bond yields in the near future is the expectation of interest rate cuts, and supply concerns may not continue to disturb the market until next year.

As far as the Chinese bond market is concerned, the current 10-year bond yield remains below 2.65%, and the probability of a significant rise in the future is not high. Wang Qiangsong, head of the research department of Southern Bank Wealth Management, told reporters: "Last week, the yield curve of government bonds was steep, and the interest rate of 1-3-year government bonds fell 7-8BP, while the interest rate of 10-year government bonds fell 4BP to 2.62%. "The easing of funds and the excess issuance of MLF led to a fall in short-term interest rates."

In his view, for the current bond market, the economy is in the stage of conversion of old momentum, the decline of old momentum has not changed the big situation of weak financing demand, and the long-term bull market in bonds is not finished (the yield tends to decline). In the short term, funds have been loosened, stimulus policies have not exceeded expectations, and short-term disturbance factors in the bond market have been reduced. Although the funds have not completed the New Year, but the funds have shown a running market, it is expected that the market will continue to fall in the short end of the bond market interest rate.