US Treasury Rate and Stock Market’Seesaw Game’ Begins… Market slump due to’fake inflation’?

Treasury yields and stock markets have begun a tug of war. Amid inflation concerns, soaring government bond yields pushed the stock market down, raising investors’ anxiety. There are concerns that the central bank’s remorse could lead to a’austerity attack’.

The seesaw game of rising government bond interest rates and falling stock prices showed its appearance on the 25th (local time). As the US 10-year Treasury bond rate soared to 1.61% during the intraday, the stock price fell like a fall.

On that day, the NASDAQ (-3.53%), Dow (-1.75%) and S&P (-2.45%) all plunged in the US New York stock market. The fluctuations continued on the 26th, and this week alone, S&P (-2.5%), Dow (-1.8%), and Nasdaq (-4.9%) all fell down.

Concerns about inflation are raising their heads as the prices of raw materials such as international oil prices rise as the economies of each country are recovering from the shock of the novel coronavirus infection (Corona 19). This is because the signal for inflation returns, which is a rise in government bond yields, has started to sound.

Bank of America strategist Hans Michelsen told CNBC, “I agree with the view that inflation is a result of economic growth, but it is stronger than expected, so inflation may rise further.”

However, some point out that concerns over inflation are excessive. Peter Cir, senior strategist at Academy Securities, told CNBC, “The rise in 10-year Treasury yields does not actually reflect an increase in inflation, it reflects investors’ expectations that inflation will rise.” “There are no widespread signs of inflation in the real world, and even if inflation occurs, it will be temporary,” Cir added.

Even voices of being deceived by’fake inflation’ appeared. In an interview with the Financial Times (FT), Daniel Ibashin, chief investment officer of global bond manager Pimco, pointed out that “false concerns over inflation are raising bond yields” and expressed the expression’inflation head fake’. wrote. Head fake is an action in basketball to deceive an opponent, meaning the price of a certain asset moves in the opposite direction.

“The economic recovery may be strong, but concerns about inflation are temporary,” said Ibasin. It is explained that the cost savings resulting from technological innovation and the still high unemployment rate can suppress inflation.

Some point out that the rise in Treasury bond yields stemmed from monetary easing attitudes such as Jerome Powell, chairman of the Federal Reserve System (Fed), rather than inflation.

Yoon Yeo-sam, a researcher at Meritz Securities, pointed out that “Fed personnel were not concerned about the rise in long-term interest rates as a result of economic improvement, stimulating the anxiety of long-term bond investors.” As investors sold bonds out of anxiety, bond prices fell (bond interest rates increased).

That is why it weighs in on the prospect that the rate of increase in government bond yields will slow somewhat. In the report, Seung-won Kang, an analyst at NH Investment & Securities, said in the report, “There may be additional upside potential, but we believe that the rate of increase in government bonds has entered a slowdown phase.”

Nevertheless, it is expected that the market will continue to shake for the time being due to the fluctuations in government bond yields. Goldman Sachs said, “Over the next few months, there will be pressure on interest rates and the consequent recovery of the stock market, which will be a challenge for risk-loving strategies.”

Reporter Ha Hyun-ok [email protected]