The Federal Reserve Board (Fed) released the results of the March interest rate decision, Thursday (18) ten-year U.S. bond yield soared, financial stocks hot up, technology stocks frozen down, investors are now scrambling to understand the real factors that prompted the re-volatility of U.S. debt?
Federal Reserve Chairman Ball pointed out in a press conference after the interest rate meeting on Wednesday that monetary policies such as asset purchases are currently appropriate, and the Fed need not react to the big rise in U.S. bond yield in recent months.
On Thursday the 10-year U.S. bond yield touched 1.75%, a new high since January 2020, and the 30-year U.S. bond yield came to 2.51, the first seen since August 2019.
There are three main reasons for the spike in 10-year U.S. bond yield, including Ball’s dovish message, Wall Street’s doubts about Fed’s commitment to keep loose monetary policy in the longer term, and the market’s reaction to other central banks.
Ball dovish message
Ball mentioned Wednesday, the Fed needs to see actual Inflation “substantial and sustained over 2% target”, rather than “expected to exceed 2%”, before starting to tighten monetary policy.
Bauer stressed that the Fed will stick to its new average inflation target framework, even if inflation temporarily soars to more than 2%, investors can also improve the economy in the next few years will become hot possibility, without worrying about the trouble of an immediate policy shift. In this case, the long-dated U.S. bond yield will not be able to withstand the risk of a surge in inflation.
Matthew Miskin, co-chief investment strategist at John Hancock Investment Management, mentioned in an interview, “This new inflation framework is destined to lead to a steep colonial curve.”
Market skepticism
In Thursday’s wave of U.S. bond selling, the 5-year, 7-year and other medium-term bond colonial rates rose the most.
Wall Street analysts believe the spike in colonial rates may also indicate that investors may be doubting the Fed’s commitment to keep accommodative policies in place for some Time. With the economy fully reopened and new stimulus packages beginning to bail out households, the uncertainty around inflation and growth is huge, and with the outlook for economic growth and inflation equally uncertain, it’s hard to know what kind of policy Fed will adopt in a year’s time.
Reactions from other central banks
Some analysts are looking for answers in the reactions of global central banks.
The Nihon Keizai Shimbun reported on Thursday 18 that the Bank of Japan will relax the movement of the long-term bond YCC yield curve control to plus or minus 0.25% to maintain the current low interest environment and facilitate the functioning of the market, while also improving the profitability of financial institutions.
Wall Street analysts said that the rise in The Japanese bond yield may expand the general weakness of bond prices in Europe and the United States, because Japanese investors will re-evaluate the return of holding domestic bonds than holding overseas bonds.
Finance, technology sings “song of ice and fire”
The sell-off triggered by the bond market has led to a steepening of the yield curve, with financial stocks being the biggest beneficiaries on Thursday. Bank of America (BAC-US), Goldman Sachs (GS-US), JPMorgan Chase (JPM-US) rose between 1% and 4%.
The sharp rise in U.S. bond interest rates dragged down technology stocks, including tesla (TSLA-US), Apple (AAPL-US) and Microsoft (MSFT-US) and other technology stocks underperformed.
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