Fed has not talked about tightening the market but confused itself Why is there a sell-off in the bond market?

U.S. bond interest rates have continued to rise recently, the financial markets alarm bells ringing.

The recent accelerated rise in bond yield rates, reflecting investors’ concern that the increase in Inflation will prompt the Federal Reserve Board (Fed) to scale back stimulus earlier than the scheduled schedule, the 10-year U.S. bond yield rate once crossed the 1.5% market concern mark, U.S. stocks fell in response to the setback.

U.S. bond yield rate rise Friday (26) temporarily rest, 10-year U.S. bond yield rate fell to about 1.45%, from a trading day the highest jump to more than 1.6% decline, but the Dow Jones is still the second consecutive day of heavy losses, the S&P, Nasdaq is back up.

The bond market flash crash on Thursday and led to heavy losses in the stock market, reminiscent of the 2013 retrenchment panic (taper tantrum). TD Securities strategists said that if interest rates continue to rise, financial conditions will tighten, with real interest rates and mortgage rates now beginning to climb, “but we expect that the Fed will try to continue to slow market doubts about the premature withdrawal of stimulus, highlighting the long-term challenges facing the world in the wake of the Epidemic.”

Bank of America strategists also said Thursday’s rapid rise in colonial rates was a sign of some sort of dysfunction caused by Fed’s big push to prop up markets last year, but Fed still considers it a healthy situation so far, so it’s unlikely to adjust forward guidance.

So far this year, colonial interest rates continue to rise with the economic growth outlook improved. Market inflation expectations have risen back to the level before the outbreak, and inflation-adjusted colonial rates until last week really began to rise, Fed Chairman Ball this week again downplayed inflation doubts, the rise in colonial rates is a sign of confidence in the market to show economic recovery.

Columbia Threadneedle Investments analyst Ed Al-Hussainy said that when market expectations of the Fed turning hawk are really reflected in the market, bonds will fall even harder.

Al-Hussainy believes that perhaps the force that caused the bond market selling pressure this Time, more mainly from the investors hope to seek higher compensation to compensate for fiscal spending, the future economic growth and inflationary rise in the risk derived from the term premium of bonds (term premium).

The bond yield is composed of the term premium and the future path of short-term interest rates, the former being the payoff that investors can accept when weighing the risks of holding long and short-term bonds. Compared to short-dated bonds, long-dated bonds are more vulnerable to economic growth and inflation uncertainty.

According to the New York Fed, the term premium was 28 basis points on Thursday, up from -88 basis points last August, reflecting some success of the Fed’s new “average inflation targeting” policy structure, which won’t let off the gas easily until inflation stays above 2% for a while.

Al-Hussainy believes that the Fed has not had the heart to curb the rise in bond interest rates.

TD Securities strategists believe that if the rise in bond rates begins to hurt the economy, the Fed may discuss the possibility of policy adjustments; one of the options being discussed is to extend the days of bond purchases.

TD Securities predicts that Ball’s talk on March 4 is expected to ease market doubts.