The concerning economic situation in the United States has intensified market risk aversion, leading to a continuous rise in U.S. Treasury bonds.

On Friday, August 2nd, U.S. Treasury bonds had already risen for seven consecutive trading days. The yield on the benchmark 10-year U.S. Treasury note fell below 4% for the first time since February, currently reporting at 3.937%.

The yield on the policy-sensitive 2-year U.S. Treasury note dropped to around 4.1%, reaching a 14-month low. By the end of July, the Bloomberg U.S. Treasury Bond Index, which tracks U.S. government bonds, had risen for a third consecutive month, marking the longest monthly streak since July 2021.

Overseas, the U.S. July ISM Manufacturing PMI was 46.8, significantly lower than the market's expectation of 48.8 and the previous June value of 48.5. The contraction was the largest in eight months, exacerbating concerns about a U.S. economic recession. In terms of sub-indices, employment, production, and new orders all weakened considerably.

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Swap contracts indicate that there is a 50% chance the Federal Reserve will cut rates by 100 basis points in 2024, and a 50% chance of a 50 basis point rate cut within 2024. This week, Federal Reserve Chairman Powell hinted that unless progress in slowing inflation stalls, a rate cut will be considered at the next meeting in September.

Escalating geopolitical conflicts and slowing U.S. economic data are driving investors towards safe-haven assets.

Damien McColough, Head of Fixed Income Research at Westpac, stated that sentiment in the U.S. Treasury market is very positive. If employment data supports market expectations for rate cuts, the yield on the 10-year U.S. Treasury note could potentially drop further to 3.8%.

Analysts anticipate that employment and wage growth in July will slow down, further confirming the weakness in the U.S. labor market. Currently, investors are closely watching the non-farm payroll data to be released by the U.S. tonight, with concerns that if the labor market cools down significantly, the Federal Reserve may not have enough time to respond to the economic slowdown.

However, regarding concerns about the U.S. economy falling into a recession, CICC does not fully agree. The institution believes that equating a slowdown directly with a recession without distinction can lead to overly pessimistic views on risk assets and overly optimistic views on safe-haven assets. Moreover, the term "recession" itself is not rigorous, as there is no unified standard for measurement.

CICC stated that comparing a slowdown "soft landing" with a recession "hard landing," one should look at the depth of the decline and whether the Federal Reserve's rate cuts can "save the situation." The causes of a recession are generally twofold: first, unexpected credit risk shocks, and second, financing costs significantly higher than investment returns, leading to sustained suppression and credit contraction, with no clear signs seen at present. During the rate cut cycle in 2019 and earlier this year, the U.S. manufacturing PMI was at similar or even lower levels. Rate cuts or expected rate cuts led to easing financial conditions and gradual recovery. Now, the rapid decline in interest rates and subsequent rate cuts have similar easing effects, with some interest rate-sensitive demands gradually recovering, such as the recovery in the real estate sector earlier this year.