Newly added on Bond Express – US Treasury Bills

In the previous article “Fixed Income USD Bonds Outlook 2023 – High interest rate is here to stay”, we believe that US Treasuries should remain highly attractive in 2023 and would be ideal for investors to place their focus on. While we highlighted previously that the Fed implied a possible slowdown in the pace of rate hikes, inflation remains strong in the US at 6.4% year-on-year in January 2023, as compared to 6.5% in December 2022. Coupled with surprisingly strong employment data in the US in January, we see greater uncertainty in the terminal rate of the US Fed funds rate – possibly going even higher for even longer than expected.

In view of the recent data, we see the market expectations for the US Fed fund terminal rates to have risen over the past month as observed in Chart 1. Given greater uncertainty over how the US Fed funds might continue to rise, as traders continue to price in higher terminal rates as more data from the US gets released, it inevitably contributed to the recent rally in the US Treasuries seen in Chart 2.

Chart 1
Implied US Fed Funds Rates

Chart 2
US Treasury Yield Curve versus 1 month ago

The US Fed funds rate has been the main driver for the attractive yields on the US Treasuries for 2022, which we have seen the US Federal Reserve raising the Fed funds rate by a total of 450 basis points since the beginning of the hikes. Taking into account the inverted yield curve (Chart 3) that is likely to remain until the Federal Reserve hints at the cutting of rates, we remain bullish on short-to-medium-term bonds with tenors of 1 to 5 years, which are suitable for investors seeking stable and decent returns. Meanwhile, we believe that longer-term bonds will continue to face higher price volatility.

Chart 3
US Treasury Yield Curve

Overall, we believe that the US Treasury Bills would be a great alternative to investors seeking “risk-free” rates, and now through Bond Express, investors may be able to access these US Treasury Bills with just USD 1,000.

Declaration: For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) hold a position in T 2.875% 31Oct2023 Govt (USD), T 3.250% 31Aug2024 Govt (USD) and T 3.125% 15Aug2025 Govt (USD) and the analyst who produced this report hold a NIL position in the abovementioned securities.