The Paper reporter Jiang Mengying
The yield on the 10-year U.S. Treasury bond is approaching 2% for the first time since July 2019.
On February 8, local time, as U.S. Treasury bonds fell, the 10-year yield once reached a high of 1.96%. The rise in yields reflects growing expectations that the U.S. economy will recover and the Federal Reserve will raise interest rates.
Data released by the U.S. Department of Commerce show that the U.S. GDP (GDP) annualized growth rate was 6.9% in the fourth quarter of 2021, which was much higher than the 2.3% growth rate in the third quarter. At the same time, the annual rate of the core personal consumption expenditures (PCE) price index in the United States in December reached 4.9%, higher than the expected 4.8% and the previous value of 4.7%, hitting a new high in the past 40 years. Strong economic growth and high levels of inflation will undoubtedly provide support for the Federal Reserve to start raising interest rates in March. According to the median forecast of economists surveyed by Bloomberg , the U.S. Consumer Price Index (CPI) may rise by 7.3% year-on-year in January, the largest year-on-year increase since early 1982. CPI, which excludes volatile energy and food items, is expected to rise 5.9%.
Employment, another core indicator that the Fed focuses on, also achieved unexpected growth and is close to full employment. The January employment report released by the U.S. Department of Labor far exceeded analysts’ expectations. The report shows that although the number of new coronavirus infection cases in the United States continues to surge, employment is showing a strong and sustained growth trend. According to statistics, the United States added 467,000 non-farm jobs in January. The previous value at the end of last year was also significantly revised upward. The 200,000 new jobs added in December was revised upward to 510,000.
When answering a reporter's question in January, Federal Reserve Chairman Powell said that the Federal Reserve has a lot of room to raise interest rates and plans to start raising interest rates in March. The Fed's next interest rate meeting will be held on March 15-16 local time.
Powell admitted, "We intend to raise interest rates at the March meeting." But no decision has been made on the extent of the increase. He said monetary policy needs to be "flexible" and that given inflation and employment, the U.S. economy no longer needs sustained high levels of support. As inflation picks up and the labor market strengthens, the Fed will continue to adjust policy.
Luca Paolini, chief strategist at Pictet Asset Management in Switzerland, said the Federal Reserve's increasingly hawkish response to rising inflation and signs that the United States is close to full employment are putting upward pressure on bond yields. But there is a risk that central banks may also overreact to inflation as supply constraints begin to normalize but new mutant strains and geopolitical tensions persist.
UBS The latest quarterly investor sentiment survey shows that inflation and interest rate increases are currently the main concerns of global high-net-worth investors, especially those who hope that the current US government will make controlling inflation a top priority (82%) . U.S. investors also believe inflation will persist throughout 2022, with almost half worried about a market downturn. Faced with market volatility, U.S. investors are considering adding stocks and hedging to their portfolios, investing cash and borrowing funds through new refinanced mortgages and secured loans ahead of interest rate hikes.
The Office of the Investment Director of UBS Wealth Management predicts that based on the similar inflation between China and the United States at the end of the year, the nominal yields on government bonds of the two countries may narrow. At the long end of the yield curve, the spread of the RMB relative to the U.S. dollar is expected to drop to 75 basis points. . As the risk of the Federal Reserve tightening policy increases and the People's Bank of China may further loosen policy, the RMB's nominal interest rate advantage may be significantly weakened. As the yield advantage of the renminbi may further shrink, pressure on the renminbi will increase amid wider fluctuations in the US dollar. If there is a new round of appreciation of the US dollar, the RMB may return to the range of 6.4 to 6.5. However, since China’s current account surplus has reached 2.2% relative to GDP this year, and A shares are relatively less sensitive to rising US yields, the RMB has fallen sharply. The space should not be large.
Editor in charge: Zheng Jingxin
Proofreader: Liu Wei
