US Treasuries plunged again on Wednesday (3rd). Long-day bond yields jumped to this week’s high. Inflation expectations also climbed to a 10-year high, reflecting investors’ continued bet that the economic recovery will accelerate after the epidemic.
The 10-year U.S. Treasury yield jumped up to 10.3 basis points to 1.495%. The steep rise is reminiscent of the bond market crash last Thursday; the bond yield trend is opposite to the price.
In addition, driven by rising oil prices, the five-year U.S. debt balance inflation rate, which is regarded by the market as an important indicator of inflation expectations in the next five years, broke 2.5% on Wednesday, the first time it has been seen since 2008.
There are many factors that led to a sharp rise in bond yields on Wednesday. US President Biden announced that vaccine production is expected to meet the needs of adults in the United States by the end of May. In order to promote the stimulus plan to pass the Senate, it is reported that Biden is willing to limit 1,400. U.S. dollarThreshold for issuance of cash checks. In addition, the United Kingdom said that as the economy recovers, it will bid for more bonds, which will also increase the pressure on the bond market.
Other factors that ignited the bond market’s selling pressure included the influx of a large-scale 10-year bond option transaction on Wednesday and ample supply of corporate bonds.
Michael Franzese, a partner of MCAP, said that as the fiscal stimulus is expected to pass and the economy is restarting, a battle between rapid interest rate rises and the Fed to maintain market stability is currently underway. The Fed may try to curb the momentum of “reflation”. Allow transactions that bet on economic rebound to be within the control of the central bank.
Fed Chairman Ball America will deliver a speech on Thursday, investors are highly concerned about whether he will disclose the doubts about the rapid rise in the yield.
Recent economic data revealed some signs of inflation. For example, according to the Institute of Supply Management (ISM) report, the price index rose to the highest level since 2008, and cost pressures increased.
Mark Heppenstall, Chief Investment Officer of Penn Common Asset Management, said that interest rate market conditions have not yet fully reflected the strong economic growth in the United States—that is, the 10-year U.S. Treasury yield has reached about 1.9%. The yield rate in January 2020 will be around this level, and there are still two months before the pandemic detonates financial market panic and the United States embarks on an anti-epidemic lockdown.
Heppenstall said that in addition to the rise in nominal and equilibrium interest rates, the inflation-adjusted 10-year real yield rate has also been adjusted, reflecting market expectations that the Fed may accelerate the pace of interest rate normalization.
He believes that the factors regarding when the Fed will start the first interest rate hike after the outbreak has not yet been fully reflected in market prices, and U.S. Treasuries may still face further selling pressure in the coming weeks.
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