To The Moon

Good morning tiger community, here we come to discuss what happened to the recent surge in the 30 years US treasury bond yield.

Introduction:

In my perspective, the recent surge in the 30-years U.S. Treasury bond yield to 5.05%, the highest level since 2007, is a complex interplay of various economic and financial factors. It has left investors, economists, and policymakers pondering the reasons behind this upward trend. In this analysis, we will delve into the key drivers of this surge, offering insights into the implications for the broader economy and financial markets.

The sudden spike in long-term U.S. bond yields, despite expectations of the Federal Reserve nearing the end of its tightening cycle, has raised several questions. To comprehend this phenomenon, we need to consider the fundamental relationship between bond yields and bond prices. As yields rise, bond prices fall, indicating increased selling pressure in the bond market.

The Term Premium:

One significant factor contributing to this surge is the term premium. It reflects the compensation offered to investors for holding long-term bonds and the associated risks. The soaring "term premium" suggests that investors perceive unexpected changes in U.S. economic growth, inflation, and the supply and demand for government bonds, leading to heightened uncertainty and risk.

Economic Indicators:

Recent economic data in the United States indicates positive economic performance. Notably, September witnessed higher-than-expected inflation and robust retail sales. To combat inflation, the Federal Reserve may need to raise interest rates further or maintain rates at elevated levels for an extended period.

Supply and Demand Dynamics:

On the supply side, there has been a significant influx of U.S. bonds into the market. In June, the U.S. debt reached its $32 trillion limit, but a new budget bill promptly raised the ceiling. By September 18, U.S. debt had surged past the $33 trillion mark. This rapid increase is striking, especially considering the roughly $7 trillion increase during the Trump administration's four years. The pace of debt accumulation under the Biden administration, at roughly $2 trillion per year, projects a debt of $35 trillion by the end of 2024 and $45 trillion by 2029. This presents a substantial fiscal burden for the United States, raising concerns globally about its ability to meet these obligations.

Inflation as a Debt Management Tool:

To address its debt situation, the United States is exploring strategies to dilute its debt burden, and one such approach is to employ inflation. The oversupply of U.S. bonds has disrupted the balance of supply and demand, amplifying concerns about a sustained increase in medium to long-term inflation. Consequently, yields on bonds of various maturities have surged.

Federal Reserve's Balancing Act:

The Federal Reserve finds itself in a delicate balancing act. On one hand, it is raising interest rates to attract global capital back to the U.S., hoping to purchase assets at lower prices after the asset prices abroad fall due to capital outflows. On the other hand, the Fed is cautious not to push the U.S. economy into a recession, thereby issuing more bonds to inject base currency into the economy.

Policy Misalignment:

The lack of alignment between monetary policy and fiscal policy is a crucial support for the resilience of the U.S. economy during this tightening cycle. With robust fiscal support, the U.S. economy is unlikely to weaken rapidly, making it challenging to rein in inflation. This may well be the method by which the U.S. is diluting its debt.

Conclusion:

In conclusion, the surge in U.S. bond yields is a multifaceted issue, driven by the term premium, economic data, supply and demand dynamics, and the role of inflation in managing the debt burden. It presents a complex financial game with global implications. As the world's leading economic power, the United States must navigate this situation carefully. The recent turbulence in stock markets reflects this uncertainty, with A-shares and Hong Kong shares experiencing significant declines while U.S. stocks remain relatively steady. The coming days will be a test for the 3,000-point support level in the A-share market.

Thank you for reading.

@Tiger_chat @TigerStars @MillionaireTiger @MaverickTiger @CaptainTiger @Daily_Discussion @VideoLounge