Interest rate ↑ US Treasury yield is high… 1.54% per year
Oil price ↑ OPEC+ extended production cut… WTI soaring
Gold Price↓ Safe Assets Charm’Tuk’… Daily decline
On the 5th, the price of gold futures (April) fell to a record low of $1689.70 per troy ounce in 11 months. Gold bars are on display at the Korea Gold Exchange in Jongno, Seoul. Reporter Eun-gu Kang [email protected]
The global financial market is fluctuating. Inflation concerns are growing as President Jerome Powell, chairman of the US Central Bank (Fed), admitted to a further rise in US Treasury yields amid signs of a recovery in the US economy. International oil prices soared, leading to further shaken stock markets in major countries.
Powell said at a video conference hosted by The Wall Street Journal on the 4th (local time), “There is still a long way to go to achieve the inflation target of an average of 2.0% with maximum employment.” With the recent 1.4% inflation rate in the U.S., his words were interpreted as signifying that he would accept further increases in government bond yields.
Chairman Powell emphasized the recent surge in long-term US Treasury bond yields, saying, “It is noteworthy, but we are watching the financial market as a whole.” Adam Krisapuli, founder of investment firm Vital Knowledge, explained, “If you don’t give any hints on market stability, it can be interpreted as not going forward with related policies.”
Immediately after Chairman Powell’s remarks, bond yields surged. The 10-year Treasury yield jumped to 1.555% per year during the intraday and ended at 1.54%. This is a 0.07 percentage point increase from the previous day (1.47%). The Nasdaq Index, which has received a lot of benefits from ultra-low interest rates, declined 2.11% over the course of a day, returning all of the gains this year. On the 5th, the KOSPI index ended at 3026.26, down 0.57% after giving out the 3,000 line.
On this day, the price of gold (April), a substitute for US Treasury bonds, was $1689.70 per troy ounce, falling below $1700 for the first time since March last year. It is analyzed that the investment attractiveness of gold declined as the yield of government bonds, which is the same safe asset, surged.
International oil prices have risen significantly. The members of the Organization of Petroleum Exporting Countries (OPEC) Plus, a major oil-producing country consultative group, broke expectations and decided to maintain a similar production reduction system next month. On the New York Commercial Exchange, Western Texas Crude Oil (WTI) April products soared 4.2% the previous day, and traded at $64.38 per barrel, up 1.2% during the day. It is the highest in 1 year and 11 months. It is observed that rising oil prices will further stimulate inflation.
US Treasury yields run too fast… Wall Street “Fed may be involved in the market”
US 10-year interest rates soar 0.5%P in a month… It seems to rise more for a while
US Treasury yields are skyrocketing as the US economy shows signs of revival. The bond yields of major countries, including Korea, are also jumping. It is predicted that the rate of increase in interest rates will accelerate further if the vaccine spread of the novel coronavirus infection (Corona 19) is accelerated and the $1.9 trillion in economic stimulus package passes through the US Congress. On Wall Street, if US Treasury yields surge further for a short period of time, the US Central Bank (Fed) is expected to intervene in the market.
○ U.S. Treasury yields increased 1.5 times in one month
On March 9 last year, two days before the’corona pandemic’ declaration, the 10-year Treasury bond yield, which reached a record low of 0.54% per year, ended at 1.54% per year on the 4th (local time). It jumped exactly 1.0 percentage point in one year.
The increase in government bond interest rates is a’predicted event’ following’vaccine distribution → economic recovery → inflation. Nevertheless, the impact on the global financial market was due to the faster-than-expected rate of increase. Since the end of January this year, the interest rate of government bonds, which has been below 1% a year since the Corona 19 crisis, has started to rise sharply. On the 27th of the same month, the 10-year yield from 1.04% per year rose 0.5 percentage points in one month. On the 25th of last month, it shook the global financial market by recording 1.614% per year during the intraday.
Treasury bond yields are highly likely to jump for the time being. This is because the implementation of large-scale stimulus measures is becoming visible. If $1.9 trillion is released from the middle of this month, the economic recovery could accelerate and inflation pressure could increase. In addition, the US Treasury Department issuing massive treasury bonds could act as an upward pressure on interest rates.
The rise in market interest rates is having an adverse effect on US businesses and households. This is because the 10-year Treasury bond yield is linked to the general loan interest rate. According to Freddie Mac, a housing finance company, the interest rate for a 30-year fixed-rate mortgage (home mortgage loan) on that day recorded an annual average of 3.02%. It has been about eight months since July of last year that the mortgage rate has exceeded 3% per year.
US Treasury bond yields are dominated by observations that the unstable movement will continue until the 17th, when the Federal Open Markets Commission (FOMC) briefing is scheduled. There is a’blackout’ practice in which key Fed officials do not make comments on monetary policy for about two weeks before the FOMC opens.
However, if government bond yields continue to fluctuate, Fed chairman Jerome Powell could suggest market intervention right after FOMC, US media reported. As intervention methods, YCC, Operation Twist (OT), Banknote Complementary Leverage Ratio (SLR) deregulation and extended deregulation are being discussed.
○ Treasury bond interest rate exceeded 2% per annum in 2 years
The Korean bond market is also fluctuating due to rising US Treasury yields. The 10-year Treasury bond rate soared to 2.010% annually in the morning of the 5th. It was adjusted in the afternoon and closed at 1.992% per year, but tensions are rising that it can surpass 2% at any time. It has been two years since March 7, 2019 (2.005% per year) that the 10-year Treasury bond rate exceeded 2% per year.
In addition to 10-year Treasury bonds, interest rates of other maturities also skyrocketed. The 20-year bonds (2.115% per year) and 30-year bonds (2.120% per year), which are very long-term bonds, rose more than 0.02 percentage points. Short-term 3-year bonds (1.066% per year) and 5-year bonds (1.438% per year) increased by 0.036 percentage points and 0.016 percentage points, respectively.
Since Corona 19, the amount of government bond issuance has also increased sharply due to the government’s expansionary finances. According to the Ministry of Strategy and Finance, the government bonds maturing next year is worth 60,727.5 billion won. This is an increase of 33.7% from 45 trillion won this year. The size of the treasury bonds maturing will increase further in 2023, reaching 68,961.4 billion won. Most of the Treasury bonds maturing maturity go through the repayment process of issuing new bonds and repaying them. If the interest rate rises in the process, the interest rate for issuing bonds also rises, increasing the burden on the Korean government.
An official from the Ministry of Science and Technology said, “To reduce the risk of having to pay off large quantities at the same time, we will try to diversify the stocks at maturity, such as early repayment.”
New York = Correspondent Jaegil Cho/Jinsung Kim/Reporter Kyungmok No [email protected]