On the 22nd (local time) at the New York Stock Exchange (NYSE), traders are checking stock market price trends. On this day, the interest rate of the US 10-year Treasury Bond rose to 1.39% per year during the intraday, and the stock market, which was relatively less attractive for investment, showed mixed trend. AP Yonhap News
The US 10-year Treasury bond interest rate soared to the highest level in a year on the 22nd (local time), shocking the market. There is an analysis that the’interest rate counterattack’ began after the era of low interest rates, which was the background of the stock market rise, has ended.
The 10-year interest rate, which is the benchmark for the US Treasury market, ended at 1.37% per year on the same day. During the intraday, it rose to 1.39% per year. Compared to earlier this year (0.91% per year), it jumped 46bp (1bp = 0.01% points). The interest rate of US 30-year Treasury bonds also soared to 2.18% per year, the highest since January of last year.
In the aftermath, the technology stock-oriented NASDAQ index plunged 2.46% in the New York Stock Exchange. Large technology stocks, which were considered beneficiaries of low interest rates, such as Tesla (-8.55%), Apple (-2.98%), Amazon (-2.13%) and Microsoft (-2.68%) were hit directly.
On Wall Street, there are many views that the US Treasury bond rate will rise further. Martin Mullon, chief economist of US investment strategy company Alpha Book, told Bloomberg News that “10-year Treasury yields will easily exceed 2% a year,” and “may exceed 3% a year in the middle of the year.”
The surge in U.S. Treasury yields is analyzed because expectations for economic recovery have increased due to the spread of the Corona 19 vaccine, and expectations for inflation are rising as the Joe Biden administration and the ruling Democratic Party are speeding up “money release”. The Democratic Party passed a $1.9 trillion’super stimulus package’ in the House Budget Committee.
The Wall Street Journal said, “The rise in government bond yields reflects expectations of an economic recovery.” I have.” In the market, the US central bank’s (Fed) base rate hike is expected to be faster than expected (2024).
Interest rates are rising rapidly in Korea. The 3-year treasury bond rate was 1.02% per year on the 23rd, the highest since April 28th (1.033% per year). The 10-year treasury bond rate also reached 1.92% a year on the previous day, the highest since April 2019.
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A warning light was on on Wall Street in the United States. As the US Treasury bond rate rises steeply. The 10-year Treasury bond rate fell to the early 0.5% range in August last year due to the aftermath of the novel coronavirus infection (Corona 19), but rose to 0.9% a year in early January this year and reached 1.39% a year during the intraday on the 22nd (local time). Ran. On Wall Street, there is widespread prospect that the US Treasury bond rate hike will continue for the time being.
“The market atmosphere has changed,” said Mohamed L. Allianz, chief economic adviser. “The market’s interest is not whether interest rates will rise further or not, but when will the excessively large move come out?”
Concerns over economic recovery + early Fed tightening
The rise in government bond interest rates is the expectation of an economic recovery from the spread of the Corona 19 vaccine. This is leading to concerns that the US central bank (Fed) will be quick to “hold money”. Market Watch said, “As the US economy is expected to normalize, there are many predictions among investors that the timing of the Fed’s rate hike will be accelerated.” TD Securities analyzed that “the market expects the Fed’s tapering (reduced asset purchase) to begin in the first half of next year and the base rate hike will begin in mid-2023.” Goldman Sachs also said, “In the market, we saw the expected time of the Fed’s base rate hike from 2024 onwards, but we are looking forward to mid-2023.”
The’aggressive money release’ of the Joe Biden administration and the ruling Democratic Party also sparked the rise in government bond rates. The U.S. poured about 3.7 trillion dollars through stimulus measures five times last year alone to respond to Corona 19. In addition, by the 14th of next month, it is pushing ahead with the processing of an extra-large stimulus package worth $1.9 trillion. To this end, the Democratic Party passed a $1.9 trillion stimulus package in the House Budget Committee. Finance Minister Janet Yellen emphasized the need for drastic stimulus measures at a conference hosted by The New York Times, saying, “There is more financial capacity”.
If the $1.9 trillion stimulus package is passed, the total amount of money the United States has invested in responding to Corona 19 will increase to $5.6 trillion. This is more than last year’s federal government budget ($4.79 trillion). Congressman Nancy Pelosi said “we need additional legislation to create more jobs.” The $1.9 trillion stimulus plan is not the end.
Super stimulus package to inflation concerns
Such aggressive money release is leading to inflation expectations. Michigan’s expected inflation rate announced on the 17th was 3.3%, up 0.3 percentage points from the previous month. It is the highest level in 6 years and 6 months after August 2014 (3.4%).
Martin Mullon, chief economist at Alpha Book, an investment strategy company in the US, said, “We have the J·J show (Janet Yellen and Jerome Powell’s super fiscal policy and super monetary policy). There is no break in government bond interest rates for the time being.” . He predicted that “the interest rate of 10-year government bonds can easily exceed 2% per year and exceed 3% per year in the middle of this year.”
The surge in government bond yields could hurt the economic recovery by increasing the financial burden on businesses and households. Interest rates on 10-year government bonds are widely used in the United States as benchmark rates for mortgage loans, automobile mortgage loans, and student loans. The attractiveness of bonds versus stocks could lead to capital outflows in stock markets and emerging markets.
However, there is still some analysis that the rate hike is not at the level to dampen the economic recovery and stock market uptrend. Bank of America predicted that “the average long-term return of large S&P 500 companies is around 3% per year,” and that “it will be difficult until the Fed raises the base rate for the 10-year Treasury bond rate to rise to 3% per year.” “Many Wall Street strategists do not expect the 10-year Treasury bond yield to reach that level (3% per year) in the short term,” said Barence, an investment magazine.
In this regard, the market is paying attention to Chairman Powell’s’mouth’. Chairman Powell will attend the Senate and House hearings for two days on the 23rd and 24th. Chairman Powell has expressed his view that he will not raise the benchmark interest rate quickly or reduce quantitative easing until employment in the US normalizes.
Washington = Reporter Ju Yong-seok, reporter Kim Ik-hwan [email protected]