html Since early August, the yield of US bond and the US dollar index have risen sharply, and the RMB exchange rate has depreciated significantly. Core conclusion: The recent surge in US Treasury yields is almost entirely driven by the rise in expectations of the Federal Reserve's interest rate hike. The rise of the US dollar is mainly due to the intensified European energy crisis, and the depreciation of the RMB is almost entirely driven by the rise of the US dollar index. see the end of this year and the beginning of next year: 10Y US Treasury yield is likely to fluctuate at a high of more than 3%, the US dollar may usher in a turning point at the end of the year, and the pressure on RMB depreciation is expected to be marginally reduced. It is recommended to keep a close eye on the trend of US inflation, the evolution of European energy crisis, and the progress of the intervention of the People's Bank of China.
. The recent surge in US Treasury yields are almost entirely driven by the expectation of interest rate hikes in .
html Since early August, the yield on 10Y US Treasury has risen from 2.6% to a maximum of 4.0%, and global asset prices have also fluctuated significantly. The long-term U.S. bond yield is mainly affected by expectations of economy, inflation and monetary policy. Specifically:
(1) In terms of economic expectations: Y-2Y U.S. bond interest rate spread was -30bp, and currently is -35bp, reflecting that the market's expectations for the US economy are slightly more pessimistic, but there is little change.
(2) Inflation expectations: html At the beginning of August, 10Y US Treasury break-even inflation rate (the interest rate spread between US Treasury and TIPS) was 2.5%, and currently it is 2.3%, reflecting that inflation expectations have declined, which will put a downward force on US Treasury yields.
(3) In terms of monetary policy expectations: html In early August, the peak of interest rate futures implicitly peak Fed interest rate futures was 3.3%, and currently 4.6%, that is, the expectation of interest rate hikes has heated up by about 130bp, which is basically the same as the upward range of US Treasury yields. Therefore, this round of US Treasury yields is almost entirely driven by the increase in interest rate hike expectations.
2. The US dollar index has soared recently, mainly due to the intensification of the European energy crisis and the expectation of "the United States is strong and the European weak".
html Since early August, the US dollar index has risen from 105.4 to a maximum of 114.2, and non-US currencies generally depreciate significantly compared with the US dollar. The core influencing factor of the US dollar index is the relative performance of the economy and monetary policies of the US and Europe. Specifically:
(1) Relative economic performance: htmlThe market's expectations for "the United States is strong and the European Union is weak" have strengthened since early August. The reason behind this is the intensification of the European energy crisis. Starting from June, Russia has significantly reduced its supply of natural gas to Europe and completely stopped supplying at the end of August. About 1/3 of EU natural gas relies on Russia. Affected by this, the eurozone manufacturing PMI has been below the boom-bust line for three consecutive months since July, and the market's expectations for the European economy are obviously more pessimistic than the United States.
(2) Relative performance of monetary policy: interest rate futures show that since early August, the ECB's expectation of interest rate hikes has increased higher than that of the United States. This reflects the sharp rise in energy prices in Europe and the inflation pressure is greater than that of the United States. The European Central Bank has to maintain a hawkish stance. Under normal circumstances, the ECB hike rate hike rate will be a negative for the US dollar faster, but for the current situation, a sharp rate hike will make the European economy worse and boost the US dollar to a certain extent.
3. The recent rapid depreciation of the RMB has been almost entirely driven by the rise of the US dollar index.
html Since early August, the onshore RMB spot exchange rate has depreciated from 6.74 to above 7.20, the lowest level since 2008. Attribution , it is mainly affected by the rise of the US dollar and the tightening of Sino-US relations:
(1) In terms of the US dollar index: html Since the beginning of August, the US dollar index has risen 8.3%, and the RMB exchange rate depreciation has been 7.5%. Therefore, the depreciation of the RMB can be completely explained by the rise of the US dollar index. In fact, the RMB appreciated compared with the Japanese yen and pound during the same period, and was basically the same as the euro and the Canadian dollar. The CFETS RMB exchange rate index , which refers to the package of currencies, only depreciated slightly by 1%, reflecting that the RMB exchange rate is still relatively resilient.
(2) Sino-US relations: Since early August, conflicts between China and the United States have intensified on geopolitical issues, and the original tariff exemption has not been implemented as scheduled. The tightening of Sino-US relations has also suppressed the RMB exchange rate to a certain extent.
4, US Treasury yield, US dollar index, RMB exchange rate trend outlook:
US Treasury yield outlook: US inflation is likely to have crossed its peak, and the economy is not far from recession. It is difficult for subsequent interest rate hikes and inflation expectations to heat up significantly again, so US Treasury yields are difficult to rise significantly again. In addition, in the previous report, we pointed out that at the end of the interest rate hike cycle in history, both the 10Y US Treasury and the federal funds rate showed an inversion of 80-160bp. According to the current expected interest rate hike path, the federal funds rate will reach 4.5-4.75% at the beginning of next year. Referring to historical experience, the 10Y US Treasury yield will be at 3.0-3.8%, which is still the highest level after 2011. US dollar outlook: As of the end of September, Europe's natural gas reserves had exceeded the same level in previous years, and the market was already very pessimistic about the European economy. So far, the European economy has not shown any situation that is worse than expected than the United States.
It should be noted that the explosion of the Nord Stream pipeline on September 27 indicates that the situation of energy shortage in Europe may last longer, so the US dollar is likely to continue to remain strong in the short term. In the medium and long term, three conditions are required for the weakening of the US dollar. First, the pessimistic expectations of the European economy have been falsified, the second is that the US economy has shown clear signs of recession, and third is that the Federal Reserve officially turns. At present, it seems that all three are expected to be confirmed by the end of the year. In other words, the US dollar may usher in a turning point at the end of the year.
RMB exchange rate outlook: Recently, the central bank has started expectation management and has enough toolboxes, including 9.26 raising the foreign exchange risk reserve ratio for forward foreign exchange sales business from 0 to 20%, 9.27 National Foreign Exchange Market Self-Discipline Mechanism Video Conference on stabilizing exchange rate "yelling" ("Foreign exchange market is of great importance, and maintaining stability is the first priority; the role of the market and the government's "two hands" can be fully utilized, and People's Bank of China has accumulated rich response experience"). Overall, the subsequent pressure on RMB exchange rate depreciation is expected to be marginally reduced, but substantial relief still requires waiting for the dollar to weaken.
Risk warning: US inflation, Federal Reserve monetary policy, geopolitical conflicts, etc. continue to exceed expectations. @Xiaofeng Looks
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