This article is from WeChat official account:Wall Street knowledge (ID: wallstreetcn)< span class = "text-remarks">, author: Yu Xudong, the original title: “the wolf is really coming! “The Anchor of Global Asset Pricing” Hits a New Year’s High”, the title picture comes from: Visual China
Friday, U.S. Treasury yields continued to rise sharply, once rising to 1.357%, the highest level since February last year, because investors expected Biden’s $1.9 trillion economic stimulus plan to come later this year Triggered strong economic growth and a rebound in inflation.
In addition, the yield on the 30-year U.S. Treasury note also climbed on Friday and hit a new high in a year, reaching 2.150%.
In addition, the real yields of U.S. 10-year and 30-year Treasury bonds are also soaring. Among them, the real yield of 30-year Treasury bonds has soared to exceed 0% for the first time since June, and soared to the highest since March 2020. The highest level.
1. Why is it rising?
Collin Martin, fixed income strategist at the Financial Times, said that part of the reason for the rise in Treasury yields is due to the rebound in growth expectations. Economists predict that Biden’s stimulus measures will not only promote US GDP growth, but also promote many advances in the vaccine field.
Martin also said that from this week’s retail data and industrial production data, personal, corporate and industrial production has recovered strongly.
During this period, inflation expectations have also steadily increased. The 10-year break-even interest rate on a U.S. inflation-protected government bond has soared to its highest point since 2014 and is currently hovering above 2%.
Goldman Sachs stated that the most likely catalyst for the current rapid rise in real interest rates is “policy-driven”, which comes from market expectations of changes in monetary and fiscal policies, and the other is “growth-driven”, which comes from the market’s improvement in economic growth. Reaction. The bank reviewed the three periods of real interest rate surges in the United States in the past 15 years and found the following obvious commonalities:
1. It usually occurs after a substantial drop in real interest rates; 2. It all occurs in the context of an expected improvement in economic growth; 3. It is usually accompanied by a significant change in the Fed’s monetary policy or fiscal policy.
2. What is the impact on the market?
However, for the market, it is very important whether the “growth drive” or the “policy drive” dominate.
Goldman Sachs believes that if the expectations of economic growth improvement remain strong as in the recent past, the rapid rise in interest rates may bring temporary anxiety to the stock and credit markets, and the long-term impact will be relatively limited. In contrast, “policy-driven” changes in real interest rates are often more disruptive.
The intensity of international capital flows also affects the sensitivity of assets to changes in real interest rates. For example, during the “shrinking panic” period in 2013, the growth of some developing countries slowed down, causing real interest rates in the United States to rise, while global emerging market assets and commodities were under tremendous pressure. When real interest rates rebounded at the end of 2015-2016, global growth expectations improved, and asset performance was much better.
Specifically, in the current stock market, Goldman Sachs found that the internal sensitivity of US stocks to economic growth and real interest rates has changed significantly during the epidemic. Although bank stocks have consistently performed well, technology stocks have underperformed during periods when economic growth and real interest rates are expected to rise sharply. This is a recent phenomenon. Goldman Sachs expects that the fragile response of technology stocks to higher real interest rates will continue for now.
As for the way to deal with high interest rate risks, Goldman Sachs said that the easiest way is to invest in US Treasury bonds. At the same time, tilting the investment portfolio towards areas that are less sensitive to interest rates, or investing part of the funds in gold and yen, may also help.
Furthermore, strategists at (ING) wrote in a research report this week that if U.S. Treasury yields continue Rising too fast will cause all other assets to fall. He said:
If U.S. Treasury yields continue to rise so rapidly, then it will cause all assets to fall.
At this point in time, the “party” in the field of risk assets may continue to be slow and steadily…but it will be stormy when the end comes. (Fast and furious).
Tai Hui, chief Asian market strategist at JP Morgan Asset Management, said that rising Treasury bond yields may cause problems for financial markets. If you look at the historical volatility of 10-year Treasury bonds and borrow the example of the 2013 panic, He believes that a 30-50 basis point increase in Treasury bond yields within two to three weeks may increase market pressure.
Union Bancaire Privee Ubp SA Asia Equity Research Director Kieran Calder said that a rise in the 10-year U.S. Treasury bond yield to 1.2%-1.3% will still support the stock market in general, but this may prompt investors to “gradually reintroduce “Longer maturity bonds to ease exposure to risky assets, assuming that the inflation rate is stable at about 2%,Then the yield level of 1.2% to 1.3% will keep the inflation-adjusted yield below the level consistent with the Fed’s desire to maintain an easing stance before the epidemic.
3. The Fed stays on the sidelines
John Williams, chairman of the New York Fed and No. 3 Fed, said on Friday that the rise in U.S. Treasury yields is a sign of optimism in the market for economic recovery, indicating that the Fed may have no intention of taking measures to prevent this transition.
He said: “We are seeing signs of rising inflation expectations, returning to a level that I think is closer to our long-term goal of 2%. We also see signs of a slight increase in the real rate of return in the future, reflecting Optimism about the economy is rising. So this is not a problem for me. It mainly reflects the market’s perception that the economic outlook will be better.”
As Congress weighs Biden’s $1.9 trillion economic stimulus plan, the market has increasingly optimistic expectations about the prospects for economic recovery. Republicans accused the stimulus plan of being too large, and some Democrats, including former Treasury Secretary Lawrence Summers, expressed concerns about overheating the economy.
Williams has no such worries. He believes that the economy has not yet climbed out of the “deep”.
“At present, the economy is still a long way from restoring employment to maximum, and we are still a long way from achieving the 2% inflation target,” he said. “So, I am not worried that the current stimulus policies or financial support will be excessive.”
This article is from WeChat official account:Wall Street knowledge (ID: wallstreetcn)< span class = "text-remarks">, author: in Xundong