According to data released by CME's " Fed Watch" on August 9, the probability that the Fed will raise interest rates by 250 basis points by September is 32%, and the probability of raising interest rates by 75 basis points is 72%. One day ago, Fed Governor Bowman continued to be hawkish and said, "The Federal Reserve should consider raising interest rates by 75 basis points multiple times in future meetings until inflation is under control, so as to reduce the high inflation rate to the Fed's target."
A report released by the U.S. Bureau of Labor Statistics on August 5 unexpectedly showed that the number of new jobs in July was strong, more than double the expected 250,000 jobs, suggesting that the Federal Reserve will continue to expand its aggressive monetary policy to curb inflation.
Federal Reserve Headquarters Building
This has also caused U.S. bond yields to fall. Wall Street continues to digest the unexpectedly strong employment report. At the same time, it is also paying close attention to the much-anticipated July inflation data to be released on August 10 for clues on how much the Fed will continue to raise interest rates. Wall Street expects CPI to slow to 8.9% in July, compared with the previous value of 9.1%.
html On August 9, the benchmark 10-year U.S. bond yield fell to 2.81%, and the two-year U.S. bond yield fell to 3.216%. At the same time, the difference between the two-year and 10-year U.S. bond yields was negative 46 basis points, which is the most serious inversion of this yield curve since 2000.
For U.S. bonds, the pressure is far more than that. Economists believe that the Fed's sharp interest rate hikes will trigger an increasing risk of U.S. economic recession. U.S. GDP growth has experienced negative growth for two consecutive quarters this year, which makes U.S. bond yields face upward risks. Bond prices are inversely proportional to yields, and rising yields mean that bonds are being sold by buyers.
According to data monitored by Reuters on August 8, in the three weeks ending on August 2, as U.S. bond yields continued their decline, U.S. bond investors sold a net of 65.1 billion U.S. bonds.
What worries Wall Street even more is that the Federal Reserve has also begun selling U.S. debt assets (quantitative tightening) on a monthly basis of 95 billion in August, which will further suppress long-term U.S. debt.
Not only that, according to the latest report released by the U.S. Treasury Department, although private investors’ demand for U.S. debt continues, global central banks have sold as much as $180 billion in long-term U.S. debt for the fourth consecutive month since this year.
In fact, according to the U.S. Treasury Department report, in the past three years, the total amount of U.S. debt purchased by global central banks has not been proportional to the amount of watermarked banknotes in the United States. Please refer to the figure for specific data.
Therefore, as U.S. federal debt and inflation surge at the same time, when global central banks need to address U.S. debt risks, the role of the dollar in the global monetary system will be reset. Although the Federal Reserve has started the process of raising interest rates, it is still unable to convert the actual yield on U.S. debt into a positive data value.
It should be noted that the official U.S. Treasury holdings report released by the U.S. Treasury Department will be delayed by two months (it is currently only released until May this year, and the next report will be released on August 17). However, as the 10-year U.S. Treasury yield has risen from 2.68% at the end of May to the current level of about 2.9% (please refer to the chart below for specific data details), we are expected to see more selling by global central banks in the next June and July reports.
Because, as the supply of U.S. bonds continues to surge and high inflation has persisted for several months, the nominal yield on U.S. debt, adjusted for inflation data, has become even more negative in real terms, making U.S. debt less attractive relative to foreign bonds. On the other hand, as U.S. dollar interbank lending interest rates have risen, inflation at a 41-year high has hedged part of the earnings on U.S. debt. (End)
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