Group 1: Economic Indicators and Federal Reserve Actions - The unemployment rate and layoff numbers in the U.S. have triggered early warning signals, indicating potential further pressure on the job market as the inventory cycle approaches its bottom [1][5][7] - The Federal Reserve is likely to continue its rate-cutting cycle, with a high probability of a 25 basis point cut in December, although the market has already priced in this expectation [2][28] - The 10-year Treasury yield is expected to experience low volatility, with support levels at 3.9% and 3.8%, and resistance levels at 4.1% and 4.2% [2][28] Group 2: Employment Market Analysis - The unemployment rate exhibits strong cyclical and nonlinear characteristics, with sharp increases during economic downturns and gradual decreases during recoveries [5][6] - The Challenger job-cut report shows a significant increase in layoffs, particularly in government sectors, which raises concerns about the employment market's deterioration [6][7] - The cumulative month-on-month change in the unemployment rate reached 0.4% in October, signaling a potential economic slowdown [6][7] Group 3: MBS Market Monitoring - In November, agency MBS yields declined alongside Treasury yields, with Fannie Mae MBS experiencing a slightly larger decrease than Freddie Mac MBS [1][38] - The credit spread of agency MBS relative to Treasuries remains stable near historical median levels, indicating a neutral valuation [38] - The duration of agency MBS is stable at around 5.5 to 6 years, with no significant overvaluation or undervaluation detected [38]

Core Viewpoint - The article discusses the recent rise in the yield of the US 10-year Treasury bond, reaching 4.6%, and the associated media narratives of a "bond crash" and "triple kill" in stocks, bonds, and currencies, suggesting that these narratives may be exaggerated or sensationalized [2][4][6]. Group 1: Data Insights - Data 1: As of March 2025, foreign holdings of US Treasury bonds reached a historical high, indicating that the narrative of a "bond crash" began only after the imposition of tariffs in April [8][9]. - Data 2: In March, the UK surpassed China to become the second-largest holder of US Treasuries, while many countries continue to increase their purchases despite China selling off some of its holdings [13][14]. - Data 3: China's holdings of US short-term securities reached the highest level since 2009 in March, suggesting ongoing interest in US debt [17]. Group 2: Current Challenges for US Treasuries - Challenge 1: Moody's downgraded the US sovereign credit rating from AAA to Aa1 in early May, which is seen as a normal reaction amid global economic slowdown and uncertainty [20][22]. - Challenge 2: The recent auction of 20-year Treasury bonds was disappointing, with a winning yield of 5.047%, higher than the average of the past six auctions, indicating increased investor demand for higher returns due to perceived risks [23][24]. - Challenge 3: Rising yields on Japanese government bonds, driven by high inflation and a hawkish stance from the Bank of Japan, may reduce Japanese demand for US Treasuries as local yields become more attractive [30][32]. Group 3: Economic Indicators and Future Outlook - The recent PMI data for May showed a reading of 52, indicating economic expansion, which aligns with the rise in 10-year Treasury yields as markets anticipate continued growth and reduced rate cut expectations [36][38]. - The article suggests that the current yield of around 4.5% on US Treasuries may present a value opportunity for investors, as many analysts believe the yield is at a high point with limited upside potential [39][42]. - The author emphasizes the importance of understanding the US inventory cycle, which may influence economic conditions and subsequently affect Treasury yields, particularly as the market anticipates a potential shift to a "de-inventory" phase later in 2025 [46][49].

Core Viewpoint - The overall inventory cycle in the U.S. is likely transitioning towards an active destocking phase by 2025, with significant implications for various industries [1][2][3]. Overall Inventory Cycle - In February, U.S. total inventory increased by 2.45% year-on-year, compared to a previous value of 2.25%. Sales increased by 3.45% year-on-year, down from 3.69% [2][3]. - The inventory cycle remains in a passive restocking phase due to "import grabbing," with Q1 net imports increasing by $359.26 billion year-on-year, of which over one-third ($129.71 billion) converted into inventory [2][3]. Industry Inventory Cycle - Among 14 major industry categories, 8 are in a passive restocking phase, including upstream chemical products, building materials, midstream electrical equipment, and downstream durable consumer goods [4]. - Historical inventory percentiles show that total inventory is at a historical percentile of 30.5%, with building materials at 71.5%, automotive parts at 67.8%, and paper and forestry products at 53.8% [4]. Upstream Inventory Status - Half of the upstream industries are in passive restocking, while the other half are in active destocking [5][6][7][8]. - Specific sectors like oil, natural gas, and consumer fuels are in active destocking as of February 2025 [5]. Midstream Inventory Status - Inventory status is mixed, with paper and forestry products in active restocking, while electrical equipment and transportation are in passive restocking [9][10]. - Mechanical manufacturing is currently in passive destocking [9]. Downstream Inventory Status - The current passive restocking phase is prolonged, indicating potential "import grabbing" demand [11]. - Automotive parts are transitioning to active destocking as of February 2025, while other sectors like household durable goods and textiles remain in passive restocking [11].