The yield of the 10-year US Treasury Bond, known as the "anchor of global asset pricing", has been soaring recently. On August 22nd, the yield of the 10-year US Treasury Bond once rose to 4.364%, the highest level since November 2007, which also aroused the concern and worry of the global market.
US Treasury Bond yield refers to the annualized rate of return of investors holding US government bonds, which reflects the market expectation and confidence in US economic and monetary policies. Rising yields in the US Treasury Bond mean lower bond prices and higher borrowing costs.
So, why did the yield of the US Treasury Bond rise? What impact does it have on the global market? What will be the future trend?
Reasons for the rise in the yield of the US Treasury Bond
US economic recovery expectation:The U.S. economy is currently looking so robust recently that Fed officials may need to double their 2023 growth forecasts when they release their latest economic outlook later this month. A widely watched unofficial estimate released by the Atlanta Fed even suggested that the United States would grow at an annualized rate of 5.6% in the third quarter.
According to the August employment data released by the US Department of Labor on September 1,In August, 187,000 new non-agricultural jobs were created in the United States, which was higher than the expected 170,000, but the number of new jobs in June and July was revised, which was 110,000 lower than before.
The unemployment rate in August was 3.8%, and both the expected and previous values were 3.5%. Although the data has cooled down, the labor market remains strong, which also increases the market's expectations for inflation and rate hike. However, according to the forecast of CME group analysis tool FedWatch (as of September 7), the probability of rate hike reaching 550-575 basis points in September is less than 10%.
Figure: Interest rate forecast probability of the Federal Reserve meeting on September 20 (as of September 7, 2022)
Signals of Fed's reduction of quantitative easing:Federal Reserve Chairman Powell said at the Jackson Hole meeting at the end of August that if the economy continues to develop as expected, the Federal Reserve may start to reduce its monthly asset purchase program of $120 billion before the end of this year. This is the first time that the Federal Reserve has explicitly put forward a timetable for reducing quantitative easing, and it is also the first time that this policy adjustment has been implemented since the financial crisis in 2008.
Quantitative easing is an unconventional monetary policy adopted by the Federal Reserve in response to the financial crisis and COVID-19 pandemic. Its purpose is to lower long-term interest rates by buying long-term bonds, thus stimulating economic growth and employment. The shrinking of quantitative easing means that the Fed is confident in economic recovery, and it also means that interest rates may rise in the future.
A stronger dollar:On September 5th, the the US Dollar Index reflecting the trend of the US dollar against a basket of currencies reached the highest of 104.9, setting a new high since March this year. Statistics show that this wave of strengthening of the US dollar has increased by more than 5% since July this year. A stronger dollar increases the attractiveness of holding dollar-denominated assets and the cost of holding assets denominated in other currencies. The rising yield of US bonds naturally enhances the attractiveness of the US dollar.
Panic index drops:Matejka, a strategist at JP Morgan Chase, said in a recent report that there is obvious complacency in the market, and the current panic index VIX is close to an all-time low, while the position has increased to an above-average level. The decline of panic index will reduce investors' demand for risky assets, and also reduce investors' demand for safe-haven assets.
The impact of rising yields in the US Treasury Bond
1. Increase the debt burden of the US government. The US government debt exceeded 30 trillion US dollars in 2022, accounting for more than 130% of GDP, setting a record high. The rising yield of the US Treasury Bond means that the cost of issuing new bonds or refinancing old bonds by the US government increases, thus increasing the debt burden and the pressure of repaying principal and interest. Excessive U.S. government debt may affect the credit rating and credibility of the United States, and may also cause market concerns about the sustainability of U.S. debt.
2. Inhibit American economic growth.Rising yields in the US Treasury Bond mean higher market interest rates, which inhibits borrowing and investment activities of consumers and businesses.
3. Triggering global capital outflow.Rising yields in the US Treasury Bond mean higher returns on holding US bonds and lower relative returns on holding other assets. This will lead global investors to reconfigure their portfolios from assets with higher risks or lower returns to assets with lower risks or higher returns.
4. Global financial risks.The rising yield of US Treasury Bond means that the volatility and uncertainty of global financial markets increase, and it also means that global financial stability and coordination are challenged. The rising yield of American Treasury Bond will affect the formulation and implementation of monetary and fiscal policies of other countries in the world, and will also affect the prospects and potential of economic growth and development of other countries in the world.
Future trend of US Treasury Bond yield
Since August, although the rate hike is expected to change little, the yield of medium and long-term bonds in the United States has further increased, and the US Treasury yields in the past 10 years is generally above 4%, and the yield curve has become steep. The rise in yields on the 10-year US Treasury Bond, a key benchmark for overall economic interest rates, has already rattled many investors.
At present, the interest rate of long-term bonds in the United States is already at a relatively high level in At present, the market has great differences on the long-term trend of US interest rates. Most investors still believe that the rapid upward trend of US inflation and interest rates since 2021 is a short-term phenomenon, but more and more investors believe that US interest rates have entered a new round of structural upward cycle after the epidemic.
Therefore, make good use of CME group's 10-year US bond futures contract (code: ZN) for hedging or speculation.$10-year US creditor company 2312 (ZNmain) $$2 years US creditor company 2312 (ZTmain) $
It is a good tool to deal with the fluctuation of US bond yield. With the increase of net circulation and the uncertainty of economic events, the demand for reliable and highly liquid interest rate risk management is pushing the capital inflow of US Treasury Bond futures to a record high. Open contracts have soared 30% this year to a record 18.5 million contracts, up 41% from a year earlier.
$NQ100 Index Main Connection 2309 (NQmain) $$SP500 Index Main Connection 2309 (ESmain) $$Gold Main Connection 2312 (GCmain) $
Comments