The yield on 10-year U.S. Treasury bonds hit a fresh 14-year high this week, reflecting the ongoing turmoil in the U.S. Treasury market.
On the one hand, the expectation of a Fed rate hike has pushed up the yield on short-term Treasuries, and on the other hand, the pressure on U.S. Treasuries and investors' risk aversion have also led to a sell-off in long-term Treasuries.
The yield on the 10-year Treasury note climbed as high as 435%, the highest level since 2007, and there is still room for upside.
Gross, a well-known bond investor, believes that the 10-year Treasury yield could rise to 45%。The founders of Pershing Square** also expect the 30-year Treasury yield to reach 55%。
These bearish voices suggest that the problem of US Treasury bonds has not been fundamentally resolved, and even if the US passes a new debt ceiling bill, it will only temporarily alleviate the risk of default.
02 The rise in US Treasury yields has raised market concerns, especially on the eve of Fed Chairman Jerome Powell's upcoming speech at the annual meeting of global central banks.
Powell is widely expected to continue to emphasize the Fed's hawkish stance, and further rate hikes may be needed in the future in order to control inflation.
Before Powell's speech, the market was less than 20% likely for a rate hike in September, but more than 40% for a rate hike in November.
Powell's speech did not surprise the market too much, he reiterated the Fed's willingness to raise interest rates, but it did not exceed market expectations.
After Powell's speech, there was a certain divergence in the bond market, with yields on short-term Treasuries continuing to rise, while yields on long-term Treasuries fell slightly.
The two-year Treasury yield rose to 5054%, while the yield on the 10-year Treasury note fell to 4233%, and the yield on the 30-year Treasury note also fell to 428%。
U.S. stocks also received some support, with all three major stock indexes all having 05%~1.0% increase.
This shows that the market has a certain expectation of Powell's remarks, although Powell is hawkish again, but it has not caused much volatility.
03 From another perspective, there are also some positive factors in US bonds, that is, the position of overseas central banks has improved. The ** of the United States even cheered for this, and finally someone took over.
The main reason for this is that the latest June data showed that the UK and Japan suddenly increased their holdings of US bonds, which is in stark contrast to the previous data for April and May, when both countries were ** US bonds in large quantities. The June increase may have been due to the fact that Treasury bonds avoided the crisis of default, attracting some buyers.
After the cessation of the first and third largest holders, the focus of the United States has shifted to China, the second largest holder. They hope that China will follow suit with its increase in US bonds, which will be better news.
Now the United States is paying attention to the itinerary of US Secretary of Commerce Raimondo's visit to China, and they expect him to make some progress on the US debt issue, although Blinken and Yellen have not reached any agreement before.
04 Will China increase its holdings of U.S. bonds?
In fact, the answer to this question is obvious, that is, it is unlikely. China has always been ** US bonds, even if the data in March this year showed some increase, but that may only be because of the *** of US bonds rather than China's active behavior.
Moreover, after the United States passed the new debt ceiling bill in June, although the pressure on U.S. debt has been reduced, China has not increased its holdings like the United Kingdom and Japan, but has continued to **, which shows that China's attitude towards U.S. debt is very resolute.
At the same time, China is still expanding with the expansion of the BRICS, the trend of global de-dollarization is becoming more and more obvious, and more and more countries will use the RMB in the future, so China needs to have more ** reserves to improve the credibility of the RMB.
From this point of view, China also needs to continue to release more funds from U.S. debt