U.S. bond yields continued to climb on Thursday (18), although the Federal Reserve Board released a dovish signal, most officials do not expect to raise interest rates before the end of 2023. The 10-year U.S. bond yield rose to 1.75% on Thursday, a 14-month high, and then stayed above 1.71%.
The market’s focus seems to have shifted significantly to care more about the factual side, which is that Inflation is happening. Sonal Desai, chief investment officer at Franklin Templeton Fixed Income Group, said the bond market is beginning to care that inflation will return, probably also because the Federal Reserve has pledged to be happy with high inflation. So far, U.S. bond yields remain relatively low and do not pose an economic risk, especially in the context of expectations that the economy is expected to grow explosively this year.
Bank of America U.S. interest rate strategist Ralph Axel said the market responded to the Federal Reserve’s statement, reflecting investors do not believe that under the current circumstances, the United States can not raise interest rates until 2023. He noted that the market is dealing with the actual meaning of “average inflation target”. In the long run, this means higher growth and higher inflation, which then means higher interest rates. Past experience shows that once the Federal Reserve faces high inflationary pressures, they will begin to “collect water”.