U.S. bond yields rose to raise market concerns, widely watched long-term U.S. bond exchange traded funds (ETF) iShares 20-year U.S. bond ETF, since last August’s high has fallen 20%, technically into a bear market, which indicates that the opposite trend with bond prices, bond interest rates are difficult to fall sharply. Bank of America also warned that up to 40 years of the bull market in bonds has ended, meaning that the bond interest rate potential continues to rise, will weaken long-term investment returns on stocks. Therefore, the Federal Reserve Board this week’s interest rate meeting can appease the bond market has become the focus.
In the vaccine distribution and the U.S. government to push stimulus measures, the market on the economic recovery and Inflation expectations rise, the U.S. bond decline has intensified in recent weeks, and the bond price trend of the 10-year U.S. bond yield on Friday had touched 1.642%, a new high of more than a year. Bank of America data show that long bonds were hit particularly hard, 30-year U.S. bonds this year to start the performance, is the fourth worst over the same period in the past century. Over the past few decades, stock market investors annual returns of about 10%, 2021 to 2030 returns may fall to 3 to 5% per year.
Bank of America noted that last year was a historic low for inflation and interest rates, the bond bull market is over and bond investors may face more losses. Investors also seem to realize this, according to Bank of America and EPFR Global data, the week ended March 10, investors redeemed $15.4 billion from bond funds, the most in a year.
Under the sharp rise in debt rates, the market is concerned about the results of at least 11 central banks around the world this week, as the European Central Bank last week after the interest rate talks indicate that it will accelerate the pace of debt purchases, more pressure on the Federal Reserve Board. However, the market generally no surprise, the Federal Reserve is expected to maintain close to zero interest rates and the current pace of debt buying.
Barclays believes that the Federal Reserve will not have a major policy adjustment this week, and will continue to maintain close to zero interest rates until the end of 2023. Asset management agency PGIM also believes that the Fed’s message will be more or less the same, with Chairman Powell expected to maintain a “dovish” tone and unlikely to make any timetable for adjusting the bond-buying program or other policies. Economists are concerned about the Federal Reserve’s latest economic forecasts, including whether interest rate hikes are expected to resume in 2023.
U.S. Treasury Secretary Yellen downplayed market doubts, saying the size of the U.S. stimulus bill is appropriate, expect to return to full employment next year, local inflation risk is small and under control.
In fact, the pace of recovery in the euro zone is expected to lag behind most developed countries, in contrast, the U.S. economic output is expected to return to pre-Epidemic levels in the middle of the year, the U.S. President Joe Biden signed a new round of bailout case is likely to further promote economic recovery. However, if the Federal Reserve Board does not act accordingly, may lead to the expansion of the bond yield gap between Europe and the United States, so that the European Central Bank is facing further pressure to buy debt to curb debt interest rates.
The same in this week’s central bank may also have a different strategy. Among them, the Bank of England may take a similar view with the Federal Reserve, focusing on economic growth; the Bank of Japan will publish a policy review, may adjust the stimulus program, or even reiterate or further reduce interest rates. Norway and Russia’s central bank may suggest a shift to a more “hawkish” monetary policy stance, Brazil and Turkey may become the first Group of 20 (G20) members to raise interest rates this year to curb inflation.
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