Since the Democratic Party achieved “Blue Sweep” on January 4, 2021, “Biden Trade” has become the main line of the U.S. market, the 10-year U.S. bond yields quickly up to 1.1% above, our view on this Our view.

  U.S. bonds down = tight liquidity? The main reason behind the rise in U.S. bond yields this round is the logic of economic recovery. The main reason behind the rise in U.S. bond yields this round is that after the Democratic Party achieved “Blue Sweep”, Biden’s new round of epidemic stimulus expectations rose, recovery expectations and inflation expectations are raised. Of course, in addition to fundamental factors, the rise in U.S. bond yields may also have concerns about the hawkish speech of some Fed officials. In the context of the Fed no longer marginal easing, the market will also be highly concerned about the subtle changes in the Fed’s attitude. However, in fact, from various indicators, the current liquidity has not deteriorated. And in the current global epidemic repeated, the U.S. debt pressure is high, the Fed actually or “water is difficult to collect”.

  Under the logic of recovery, the U.S. debt upward movement is expected to continue, how much space is left? In fact, review the history of several rounds of the U.S. economic recovery phase, the overall U.S. debt showed a decline. In other words, in the economic recovery-led logic, the current round of U.S. bond yields may still be in a period of time to show shock upward. The subtle changes in the speeches of the Fed officials may be another important variable affecting the pace of U.S. bonds. From a historical comparison, since 2000, the U.S. economic recovery period U.S. bond yields overall upward about 70 ~ 120bp, the current round of U.S. bond yields since April 1, 2020 has risen 53bp, still in the normal range.

  U.S. bonds down = U.S. stocks down? During an economic recovery, U.S. bonds fall while U.S. stocks tend to move up. Under the macro logic of economic recovery and rebounding risk appetite, funds tend to flow out of safe-haven assets (U.S. bonds) and into risky assets (e.g. U.S. stocks), and U.S. stocks tend to rise, as confirmed by historical performance. Admittedly, the upward movement of U.S. bond yields will have some impact on U.S. stock valuations. However, considering that the main logic of U.S. stocks will switch from liquidity to earnings repair in 2021, the impact of the path of “rising U.S. bond yields → falling U.S. stock valuations → falling U.S. stock indexes” may be more limited.

  US bonds down = money out of emerging markets? The margin of safety for Chinese Treasuries is still sufficient. Historically, the overall liquidity environment (the Fed’s attitude), the US-China spread and the expected appreciation of the RMB will affect the willingness of foreign institutions to hold RMB bonds. In 2015, the “tightening of the Fed’s liquidity + appreciation of the US dollar + plunge in commodity prices”, which led to a significant withdrawal of funds from emerging markets, is obviously not available. From the current macro warning index of emerging markets and asset reflection, funds are still flowing into emerging markets, rather than withdrawing. From the perspective of the US-China spread, even with the recent rapid upward movement of US Treasury yields, the US-China spread is still at its high point since 2014. Therefore, the margin of safety for Chinese Treasuries remains adequate.