Cailianshe September 6 (Editor Xiaoxiang) On the first trading day after the Labor Day holiday in the United States, Wall Street seemed to immediately enter a tense "fighting state". The US market suffered a double-debt defeat on Tuesday. An optimistic ISM service industry index on the same day once again triggered people's expectations that the Federal Reserve's rate hikes further significantly. At the same time, almost none of the European bond markets were spared, and the yields of bonds in many countries soared across the board.
market data shows that most U.S. bond yields rose sharply overnight, and the increase in long-term bond yields was particularly obvious. The 10-year U.S. Treasury yield rose 15.9 basis points to 3.354%, while the 30-year U.S. Treasury yield rose 15.6 basis points to 3.505%, a new high since 2014.
10-year U.S. Treasury yields are regarded as representative of global lending costs and have the reputation of the anchor of global asset pricing . As the US Treasury market, which is as large as $23 trillion, suffered a widespread sell-off, policy-sensitive two-year Treasury yield climbed 11.5 basis points overnight to 3.515%. Bond yields rise as prices fall.
The sharp selling of US bonds also put US stock under pressure again on the first day after the short holiday, especially the impact of technology stock was the most obvious.
, which is dominated by technology stocks, , fell for the seventh consecutive trading day on Tuesday, the longest decline since November 2016. The index fell 0.7%, while the broader coverage of S&P 500 fell 0.4%, while the blue chip index fell 0.6%.
The U.S. Society of Supply Management (ISM) released a latest data on Tuesday showed that U.S. service industry activity exceeded economists' expectations in August, with the ISM service industry index rising from 56.7 to 56.9 that month, higher than the market forecast of 55.1. Any data above 50 means economic expansion. The optimistic report shows that despite high inflation, rising interest rates and widespread uncertainty in the economic outlook, consumers' demand for the service industry remains strong.
Market analysts pointed out that at this stage, the good news of the US economy seems to be playing bad news in the market again, because positive economic data may mean that the Fed will continue to raise interest rates aggressively to suppress inflation. Citi analysts said that ISM's survey "shows the flexibility of the service industry in the economy, despite the pressure of high prices and continuous difficulties in hiring workers."
"This should keep the Fed's tough stance, raising interest rates by 75 basis points in September, as inflationary pressures in the service industry seem to better reflect the tightening of the labor market, while the impact of the commodity has less impact."
After the above data was released, market expectations for the Fed's interest rate hike in the coming months continued to heat up, while expectations for a rate cut next year have further cooled down. Investors currently believe that by March next year, the Federal Reserve's benchmark rate will climb to nearly 4%.
European bond markets sell off simultaneously
It is worth mentioning that while the price of US bonds is under significant pressure overnight - yields generally showed double-digit basis points increase in each term, European bond markets were not spared, and even the selling force of bond markets in some countries is even more fierce than that of US bonds.
Among them, UK 10-year benchmark Treasury bond yield soared 15.7 basis points to 3.091% on Tuesday, hitting the 3% mark for the first time since 2014. The index's yield has soared by more than 90 basis points last month, the largest monthly gain since at least 1989.
The sell-off of British bonds is largely due to market expectations that the new British Prime Minister Tras will push for increased fiscal spending after taking office. In addition, under the pressure of high inflation, the Bank of England may also introduce more radical austerity policies. The price of swap contracts related to the BoE session of the swap contracts shows that since early August, rate hikes are expected to rise steadily, with market betting that key interest rates will more than double from 1.75% before the end of the year. Investors are worried that inflation will slide out of control even if the Bank of England raises interest rates six times in a row.
In terms of European bonds, the yield on Germany's 10-year government bond also rose 7.4 basis points to 1.631% on Tuesday, and a significant V-shaped reversal intraday showed up in the market. The European Central Bank will announce its latest monetary policy decision on Thursday, with several Wall Street banks expected to raise interest rates sharply by 75 basis points. The bank implemented its first rate hike since 2011 in July, and some members of the management committee have since laid the foundation for a larger rate hike, stressing the need for quick action to curb high inflation.
Many market traders said that for the bond market, although it has undergone a bloodbath on Tuesday, the real test of this week may have just arrived. In addition to Thursday's European Central Bank interest rate resolution, Fed Vice Chairman Brainard and Fed Chairman Powell will also make their final speeches before the September interest rate meeting today and tomorrow.
The debate over how much the Fed raises interest rates in September is likely to be revealed in advance with these two key speeches and the release of the US August CPI data next Tuesday.
This article is from Cailianshe
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