On Wednesday, long-term bond yields further hit their highest level in over 16 years, with the 10-year US Treasury yield, known as the "global asset pricing anchor," only one step away from the symbolic "breaking 5" moment after breaking the 4.9% mark.
Market data shows that the yield of 10-year US treasury bond bonds rose to 4.902% on Wednesday, the highest closing level since July 2007.
The yield of other maturities also generally further increased overnight. Among them, the two-year US Treasury yield increased by 0.7 basis points to 5.231%, the three-year US Treasury yield increased by 3.8 basis points to 5.058%, the five-year US Treasury yield increased by 6.3 basis points to 4.941%, and the 30-year US Treasury yield increased by 7 basis points to 5.001%.
The reason why the US bond sell-off storm continues to spread is due to increasing concerns among market participants about the market capacity under the massive US government debt issuance, and the expectation that interest rates will be "higher and longer" is also continuing to hit bond bulls.
On Wednesday, Federal Reserve number three and New York Fed Chairman William reiterated the common view of most Fed officials that interest rates need to remain high for a period of time in order to bring inflation back to the central bank's 2% target. In his latest speech, Williams stated that inflation has significantly decreased, but there is still a long way to go to reach the goal of reducing inflation to 2%. He will not declare victory in the fight against inflation.
Jake Remley, Senior Portfolio Manager at Income Research Management, pointed out in his remarks about the latest comments from Federal Reserve decision-makers that the market is gradually realizing that they may actually tell us that what is about to happen (and the last one) is true. The prospect of large government budget expenditures in the future has also increased market concerns.
In fact, even with such high borrowing costs, consumer spending and the labor market in the United States remain resilient. The "terrifying data" released on Tuesday far exceeded market expectations for retail sales growth, and last month's non farm employment unexpectedly surged.
According to data from the interest rate swap market, futures traders' bets on the Fed's rate cut next year have rapidly narrowed, and they believe that the US federal funds rate may remain above 5% until September 2024.
In recent weeks, the rapid rise in bond yields has weakened Wall Street's enthusiasm for stocks. Once the 10-year US Treasury yield, which has the "global asset pricing anchor," breaks through the 5% mark in the future, it is likely to bring greater pressure to related markets such as the stock market. The three major stock indexes in the United States fell more than 1% on Wednesday, with the Nasdaq Composite Index falling by 1.6%.
George Cipoloni, portfolio manager at Penn Mutual Asset Management, pointed out that the market is on a tightrope. The risks ahead are significant.
The higher yields on US Treasuries are making borrowing costs higher for businesses and households, which also reduces the attractiveness of stocks, as they represent essentially risk-free returns, raising the threshold for high-risk assets such as stocks to achieve relative returns.
From the overnight trend, the decline in US stocks basically occurred after the 30-year US bond yield "broke 5" again, and this is also the longest term US bond yield "broke 5" again after the release of non farm data earlier this month.
It is worth mentioning that while US bond yields have risen, the average interest rate on 30-year fixed rate mortgages in the United States also broke through 8% this week, marking the first time since mid-2000. This extreme high interest rate level is likely to further impact transactions in the US housing market. In the long run, if buyers purchase a house worth $400000 with a 20% down payment, their monthly mortgage expenses will be nearly $1000 more than two years ago.