2023-10-23 06:40:04
Known as the “anchor of global asset pricing”Ten-year U.S. Treasury yield, recently broke through the important mark of 5% for the first time in intraday trading, hitting the highest level since 2007. For market investors, this brings a major sense of crisis and triggers a series of turmoils from the stock market to the real estate market.
The massive increase in supply volume is considered to be an important reason for the current surge in U.S. bond interest rates. In the past month, the U.S. federal government has added $590 billion in new debt. Coupled with the Federal Reserve’s balance sheet reduction, the liquidity crisis in the bond market continues to intensify.
It is worth noting that the strong economy is still pushing up U.S. bond yields, and many institutions believe that there may not be any sign of a significant decline in U.S. bond yields this year.
Stock markets are already feeling the turmoil
For a variety of reasons, 5% of 10-year yieldConsidered an important milestone by investors. Rising U.S. Treasury yields would tighten financial conditions, raising the cost of credit for companies and individuals, dampening investor interest in stocks and other risky assets.
The result of the surge in U.S. bond yields has been quickly reflected in the market.S&P 500 IndexIt’s down about 7% from the year’s highs as the fixed income offered by U.S. government bonds lures investors away from stocks.
“Investors have to look at risk assets very carefully,” said Gennadiy Goldberg, head of U.S. rates strategy at TD Securities. “The longer we are in a higher interest rate environment, the more likely we are to see something disrupted.”
Real estate may be hit hard
Federal Reserve Chairman Jerome Powell said on Thursday that monetary policy was not “too tight,” providing further support to those who believe interest rates may remain high for longer.
Interest rates on 30-year fixed-rate mortgages, the most popular home loan in the United States, have risen to their highest levels since 2000, hurting confidence among homebuilders and putting pressure on mortgage applications.
In an economy with a strong job market and strong consumer spending, the housing market has been the industry hardest hit by the Federal Reserve’s aggressive actions to cool demand and curb inflation.
Bond bear market may be hard to stop
The rise in interest rates to 5% coincides with what Bank of America calls the worst U.S. bond bear market in nearly 250 years. “The technical picture is starting to look like we’re in a doom loop,” said Chris Low, chief economist at FHN Financial in New York.
The rise in yields is “almost self-perpetuating” and central banks, once the largest buyers of bonds, are not buying bonds now because they are shrinking their balance sheets.
Low said a 5% yield “is a psychological level at which the 10-year Treasury note is probably a good investment, and that return is more attractive than a 1% to 2% yield.” It makes more sense for many people.”
Investors continue to be uneasy
Volatility in U.S. stocks and bonds has increased in recent weeks as expectations for Federal Reserve policy shift. Investors are also unnerved by expectations of a surge in U.S. government deficit spending and the issuance of debt to pay for those spending.
The MOVE index, which measures expected volatility in U.S. Treasuries, is near its highest level in more than four months. Equity volatility also rose, causing the CBOE Volatility Index VIX to rise to a five-month high.
“The correlation between the U.S. dollar and interest rates has been positive and strong during the current policy tightening cycle,” Athanasios Vamvakidis, global research strategist at Bank of America, said in a note on Thursday.
In the context of the high ten-year U.S. bond interest rate, Zhong Zhengsheng, chief economist of Ping An Securities, believes that first, the volatility and adjustment pressure of U.S. stocks are rising. The current valuation of U.S. stocks is not low. As U.S. bond interest rates rise, the price-performance ratio of stocks and bonds is bound to decline; rising economic and policy uncertainty may curb stock market risk appetite.two isdollar indexOr remain relatively strong.The recent rise in geopolitical risks and increased upward pressure on oil prices have weakened the economic growth prospects of Europe, Japan and other non-U.S. economies, further increasing thedollar index.The third isgoldThere may be a risk of price correction at some stage. If geopolitical conflicts do not expand beyond expectations,goldPrices may be more affected by the actual interest rate on U.S. debt and the U.S. dollar exchange rate.
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