Financial News Agency (Shanghai, Editor Xiaoxiang) News, U.S. bond yields rose sharply overnight, with the benchmark 10-year U.S. bond further breaking through the 1.70% mark early on Thursday (May 13), after the U.S. 4 The monthly consumer price index (CPI) was much higher than expected, exacerbating concerns that the economy may be heading towards a period of sustained high inflation. Thinking of last week's non-farm payrolls, which fell short of expectations, some people in the industry are even worried that the U.S. economy may experience "stagflation".
market data shows that the 10-year U.S. bond yield rose 6.8 basis points to 1.697% late overnight, recording the largest single-day basis point increase since March 18.
U.S. bond yields in other cycles also rose across the board. The 2-year U.S. bond yield rose 0.8 basis points to 0.177% in late trading, the 5-year U.S. bond yield rose 6.5 basis points to 0.87%, and the 30-year U.S. bond yield rose 6.2 basis points to 2.413%.
As the yield curve further steepens, the 2-year/10-year U.S. bond yield spread further widens to 152 basis points, the widest level so far this month.
Inflation fears have become a reality. The U.S. market has suffered a bloodbath
The U.S. Department of Labor announced on Wednesday that the consumer price index (CPI) surged 0.8% month-on-month in April, the largest increase since June 2009. This data greatly exceeded previous economic data. The consensus estimate was 0.2%. Last month's inflation rate increased by 4.2% year-on-year, also hitting a new high since September 2008.
Excluding volatile food and energy prices, core inflation was also higher than expected, rising 0.9% last month after rising 0.3% in March. The report said this was the largest increase in core CPI since April 1982.
The performance of CPI data that far exceeded expectations further ignited the market's panic about inflation. After the release of the data, US stocks technology stocks plunged , and US bond yields and the US dollar rose sharply. The bond market's indicator of future price pressures further jumped to multi-year highs - the five-year breakeven inflation rate exceeded 2.8%, the highest level since 2005.
In the U.S. stock market, the three major U.S. stock indexes all fell close to or exceeded 2% on Wednesday. The CBOE market volatility index VIX, known as the "fear index", closed at 27.64, the highest since March 4. Market-leading megacap stocks including Amazon , Apple , Alphabet, Microsoft and Tesla fell between 2% and 3% as investors unloaded the stocks as many believed they were overvalued. high.
For a while, the market seemed to be returning to the situation when the bond market panicked in February and March this year. , the single-day combined decline of U.S. stocks and U.S. bonds hit the highest level since February.
"The CPI data was stronger than expected, leading to further weakness in technology stocks," said Michael James, managing director of equity trading at Wedbush Securities. "Tech stock investors are worried that higher interest rates will bring multiple pressures, and in a period of higher interest rates, The valuations of technology companies will become less attractive in this environment.”
Financial markets have previously been concerned about inflation as prices of commodities such as copper and lumber surged to record levels earlier this month. Worry has already spread. The latest round of U.S. corporate earnings calls showed the word inflation once again becoming a hot topic. Data from Google Trends shows that searches for the word inflation have also surged recently.
Who still believes that is fed ? The market is betting that interest rates will be raised by the end of next year
Fed officials have stated many times before that rising inflation will be only "temporary." However, as overnight CPI data far exceeded expectations, the market has expressed doubts about the Fed's views on prices. People are clearly no longer gullible - Interest rate traders are increasing bets that the Federal Reserve may be forced to raise interest rates next year, well before policymakers have indicated.
In the interest rate dot plot forecast released at the March interest rate meeting, 7 of the 18 Fed officials predicted that interest rates would be raised by the end of 2023, and only a smaller number (4) predicted that the Fed would take action in 2022. The median forecast remains that the Fed will keep interest rates on hold until 2023.
U.S. money markets on Wednesday fully priced in a 25 basis point interest rate hike by the end of 2022 following the release of higher-than-expected U.S. inflation data. The Eurodollar futures contract expiring in December 2022 now expects a 25 basis point rate hike by the end of next year, compared with 22 basis points before the data was released. Futures contracts for 2023 also suggest higher interest rates, with the June 2023 contract predicting a cumulative rate hike of 45 basis points, compared with 41 basis points before the data was released.
"Wednesday's data destroys the theory that higher inflation is a temporary phenomenon," said Tom di Galoma, managing director of Treasury trading and strategy at Seaport Global.
Peter Boockvar, chief investment officer of Bleakley Advisory Group, also pointed out, "Inflation is becoming widespread and has been reflected in official data. The Fed hopes that this is a temporary phenomenon, but unfortunately, I insist that this is not. The Fed's policy is out of touch with reality. , which is scary.”
It is worth mentioning that Fed Vice Chairman Clarida said on Wednesday after the release of CPI data that the CPI explosion in April really surprised him, but he still believes that the rise in inflation is largely a temporary phenomenon, mainly related to last year's economy. It is related to the base effect of the shutdown and supply chain bottlenecks pushing up prices. Clarida pointed out that "the economy is still a long way from our goals, and it may take some time to make substantial further progress."
However, compared to Clarida's "cliché", market participants It seems that he is more willing to believe the views of Dudley, the former third-in-command at the Federal Reserve who has retired. Dudley warned earlier this week that while the Fed has pledged to be patient in withdrawing support for the economy, it may be too late by the time it actually starts to tighten money. "When they have to catch up, short-term interest rates will rise much higher than financial markets are currently reflecting."
Bridgewater Associates Greg Jensen, co-chief investment officer, also said Wednesday that the huge household savings accumulated during the pandemic It will be released this year and will boost inflation more than the Fed expects. Some of this could create further shortages and greater inflation.
Regarding the next direction of the bond market, Massimiliano Macia, senior fixed income expert at Allianz Global Investment Department, predicts that "The yield on longer-term government bonds will continue to be higher, and the 10-year U.S. bond will test the 1.8% area in a short period of time. The 10-year German Bund yield will rise to 0%.”
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