U.S. Treasury yields soared on Monday (April 12), and the prospect of the Federal Reserve accelerating policy tightening and inflation concerns drove U.S. Treasury bonds to continue to be sold off. Treasury yields move inversely with prices. The 10-year Treasury yield rose to 2.78%, the highest level since January 2019. The yield on 20-year Treasury bonds exceeded 3% and rose to 3.0011%, the highest level since the U.S. Treasury Department resumed issuance of 20-year Treasury bonds in May 2020.
The market's relentless sell-off in U.S. Treasuries continued on Tuesday and, by at least one key metric, could signal the end of the 40-year bond bull market. The yield on the 10-year U.S. Treasury note rose above 2.80%, its highest level since December 2018, as traders bet the Federal Reserve will step up its pace of tightening policy to curb inflation. Data shows that the upward trend in interest rates will exceed 2.83% - threatening the last resistance line of the bull market. The 30-year U.S. Treasury yield rose to 2.86%, the highest level since May 2019.
The rise in Treasury yields has reduced the attractiveness of stock valuations - especially long-term growth stocks. Rising government bond yields will greatly increase market financing costs, and new technology companies are highly dependent on financing, posing greater pressure on them. U.S. CPI data may further push up U.S. debt, with U.S. inflation hitting a 40-year high.
At the same time, Treasury yields have risen, forcing the Federal Reserve to speed up the pace of interest rate increases and increase interest rate increases. Otherwise, problems will arise in the entire financial market. In particular, commercial banks will experience a liquidity crisis. Furthermore, the rise in Treasury bond yields indicates that inflation is about to worsen and the stock market bubble is about to collapse. One indicator has reached alarming proportions. The U.S. Dollar Index , which measures the U.S. dollar against six major currencies, was at 100.11 on Tuesday (April 12), testing last week's near two-year high of 100.19. As the global reserve currency, the US dollar has appreciated again, which is likely to make emerging market capital once again face severe liquidity risks.
As the world's most important reserve currency, every move of the US dollar is often of great significance to the financial market. Under the current trend of tightening by global central banks, the appreciation of the U.S. dollar is likely to accelerate the return of global U.S. dollar assets to the United States and intensify the liquidity risks faced by emerging market economies, making corporate financing costs higher.
Everyone has noticed that as of the close of the day on April 11, the yield on 10-year Chinese government bonds was 2.7402%, and the yield on 10-year US government bonds exceeded 2.78%. The market calls it the first time since 2010 that the interest rate spread on 10-year Treasury bonds between China and the United States has inverted. The word "hanging upside down" is inaccurate. The accurate statement is that the 10-year Treasury bond yield is higher in the United States than in China. In essence, there is no comparability between Chinese and American interest rates, including Treasury bond yields. Because the financial environment and the price formation mechanism are very different.
However, if we insist on comparing, we must compare under the conditions of a completely free market and completely open finance. Well, first of all, the U.S. dollar will appreciate, the U.S. dollar index will go higher, and the RMB exchange rate against the U.S. dollar will continue to depreciate. Next, international capital will flow out, and if there are real estate and financial bubbles, they will be punctured. On April 12, according to the China Foreign Exchange Trading Center, the central parity rate of RMB against the US dollar was reported at 6.3795, a depreciation of 150 basis points.
Secondly, the dilemma of monetary policy of the People’s Bank of China will intensify. Domestic consumption is insufficient, PMI has fallen below the boom-bust line, and the demand for monetary policy is to loosen monetary policy, cut interest rates and reduce reserve requirements to stimulate the economy. However, China's interest rates are lower than those of the United States, which puts depreciation pressure on the RMB exchange rate and requires no credit easing. How to do it?
Fiscal and tax policies must play a leading role in regulating the economy. The implementation of policies such as tax rebates and fee reductions, financial structural support for the real economy, the issuance and use of special bonds, the start of construction of key projects, and support for enterprises to stabilize their jobs must be arranged and accelerated.
