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On the 22nd (local time) at the New York Stock Exchange (NYSE), traders are checking the stock market price trends. On this day, the interest rate of the US 10-year Treasury bond rose to 1.39% per year during the intraday, and the stock market, which was relatively less attractive for investment, showed a mixed trend. AP Yonhap News
The 10-year US Treasury rate shot up to the highest level in a year on the 22nd (local time), shocking the market. There is an analysis that the era of low interest rates, which has been the backdrop to the rise in the stock market, is over and the ‘interest rate counterattack’ has begun.
The 10-year interest rate, which is the benchmark (standard) of the US Treasury market, ended at 1.37% per year on the same day. During the intraday, it rose to 1.39% annually. Compared to the beginning of this year (0.91% annual), it jumped 46 bp (1 bp = 0.01% points). The interest rate on 30-year US Treasuries also soared to 2.18% annually, the highest since January last year.
Subsequently, the NASDAQ index oriented to technology stocks plunged 2.46% on the New York Stock Exchange. Large technology stocks, considered beneficiaries of low interest rates, such as Tesla (-8.55%), Apple (-2.98%), Amazon (-2.13%) and Microsoft (-2.68%) were were directly affected.
On Wall Street, there are many opinions that the rate on US Treasuries will rise further. Martin Mullon, chief economist at US investment strategy firm Alpha Book, told Bloomberg News that “yields on 10-year Treasuries will easily exceed 2% a year” and “may exceed 3% a year by mid-September. anus”.
Rising US Treasury yields are analyzed because expectations of economic recovery have risen due to the spread of the Corona 19 vaccine, and inflation expectations are rising as the Joe Biden administration and the ruling Democratic Party are accelerating the “ release of money. ” . The Democratic Party passed a $ 1.9 trillion “super stimulus package” in the House Budget Committee.
The Wall Street Journal said: “The rise in government bond yields reflects expectations of an economic recovery.” In the market, there is an atmosphere in which the rate hike by the US central bank (Fed) could be faster than expected (2024).
Interest rates are rising rapidly in Korea. The 3-year Treasury bond rate was 1.02% per year on April 23, the highest since April 28 (1.033% per year). The 10-year Treasury rate also hit 1.92% per year the previous day, the highest since April 2019.
10-year US Treasury yields approaching 1.4% per year
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A warning light was on on Wall Street in the United States. Since the rate on US Treasuries has risen sharply. The 10-year Treasury bond rate fell to the early range of 0.5% in August last year due to the aftermath of the new coronavirus infection (Corona 19), but rose to 0.9% annually in early January this year. and reached 1.39% annually. during the intraday of the 22nd (local time). On Wall Street, there is a widespread outlook that the rate hike on US Treasuries will continue for the time being.
“The market atmosphere has changed,” said Mohamed L. Allianz, chief economic adviser. “The interest of the market is not whether interest rates will go higher or not, but when will the excessively large move occur?”
Economic Recovery Concerns + Fed Early Adjustment
Rising government bond interest rates is the expectation of an economic recovery from the spread of the Corona 19 vaccine. This raises concerns that the US central bank (Fed) will rush to “hold money. “. Market Watch said: “With the expectation that the US economy will normalize, there are many predictions among investors that the Fed rate hike will accelerate.” TD Securities analyzed that “the market expects that the reduction (reduction of the purchase of assets) of the Fed begins in the first half of next year and that the rise of the base rate begins in the middle of 2023”. Goldman Sachs also said: “In the market, we saw the expected time for the Fed’s base rate increase from 2024 onwards, but we expect mid-2023.”
The ‘aggressive release of money’ by the Joe Biden administration and the ruling Democratic Party also led to a rise in government bond rates. The United States invested about $ 3.7 trillion through stimulus measures five times last year alone to respond to Corona 19. Also, by the 14th of next month, it will go ahead with processing an oversized stimulus package for worth 1.9 trillion dollars. To this end, the Democratic Party passed a $ 1.9 billion stimulus package in the House Budget Committee. Finance Minister Janet Yellen stressed the need for bold stimulus measures, saying, “There is more financial capacity,” at a conference organized by The New York Times.
If the $ 1.9 trillion stimulus package is approved, the total amount of money the United States has invested in responding to Corona 19 will rise to $ 5.6 trillion. This is more than last year’s federal government budget ($ 4.79 billion). Congresswoman Nancy Pelosi said “we need more legislation to create more jobs.” The $ 1.9 trillion stimulus plan is not the end.
Super Stimulus Package to Inflation Concerns
Such an aggressive release of money is generating inflation expectations. Michigan’s expected inflation rate announced on the 17th was 3.3%, 0.3 percentage points higher than the previous month. It is the highest level in 6 years and 6 months since August 2014 (3.4%).
Martin Mullon, chief economist at Alpha Book, an investment strategy firm in the US, said: “We have the JJ program (the super fiscal policy and the super monetary policy of Janet Yellen and Jerome Powell). No there is a break in interest on government bond rates for now. ” He predicted that “the rate on 10-year Treasuries could easily exceed 2% per year and exceed 3% per year by the middle of this year.”
Higher yields on government debt could harm economic recovery by increasing the financial burden on businesses and households. Interest rates on 10-year government bonds are widely used in the United States as benchmark rates for home loans, auto loans, and student loans. The lure of bonds versus stocks could lead to capital outflows in equity markets and emerging markets.
However, there is still some analysis that the rate hike is not at the level of slowing down the economic recovery and the uptrend of the stock market. Bank of America predicted that “the long-term average yield for large S&P 500 companies is around 3% per year,” and that “it will be difficult until the Fed raises the base rate for the rate on Treasuries at 10 years increase to 3% per year “. “Many Wall Street strategists do not expect the 10-year Treasury yield to reach that level (3% per year) anytime soon,” said Barrance, an investment magazine.
In this regard, the market is paying attention to President Powell’s ‘mouth’. President Powell will attend Senate and House hearings for two days on the 23rd and 24th. President Powell has expressed his opinion that he will not rapidly increase the benchmark interest rate or reduce quantitative easing until employment is normalized. in United States.
Washington = correspondent Joo Yong-seok / Reporter Kim Ik-hwan [email protected]
