Whether United States Escapes Deflation Will Affect Treasury Bond Market

Unlike the violent fluctuation in the energy market and the great volatility in the stock market, the U.S. Treasury market has been particularly calm in recent weeks, and no one can say where it's heading to.

After the initial shock of the coronavirus epidemic, many bond traders were neither able nor willing to bet on the direction of US Treasury yields. The benchmark U.S. 10-year Treasury yields, after roller-coastering in March from a record low of 0.31% to a high of 1.27%, fluctuated in a much smaller range of 0.54% to 0.78% in April.

According to the institutional investor survey data released by JP Morgan Chase, two-thirds of the surveyed institutions have become more neutral in terms of fund allocation, a proportion close to the highest level in the past two years. This situation indicates that there are few large-scale risk-taking investments at the moment.

Most bond yields have been trading in a tight range, which means that investors are still holding out to see whether the United States can escape the whirlpool of deflation. A large amount of fixed-income futures positions were closed in March, and since then, the size of the open interest has hardly changed, and has been hovering around the lowest level since 2017.