1, the U.S. bond yields broke 1.5%? Recent U.S. bond yields upward speed accelerated significantly, in early January, the U.S. bond yields exceeded 1.0%, February 25, the U.S. bond yields exceeded 1.5%, less than a month up 50BP, causing market shock. Before February this year, the upward movement of U.S. bond yields was mainly driven by inflation expectations; this wave of upward movement in February was mainly driven by the upward movement of real interest rates. On the one hand, because of the expectations of economic recovery; on the other hand, because the Fed is not taking over as fast as the supply, the gap between supply and demand for U.S. bonds is widening. In addition, the micro-level trading behavior also has an impact on the recent acceleration of the upward movement of U.S. bond yields.
2. What is the impact of rising interest rates? U.S. bond yields or continue to rise, on the one hand, the U.S. vaccination accelerated, the epidemic continues to improve, the economic recovery is expected to continue to rise; on the other hand, crude oil prices continue to rise, energy CPI will accelerate under the influence of low base, but also to further promote inflation upward. In addition, the Federal Reserve has not yet changed the structure of bond purchases, nor has it taken new tools, and the problem of the supply and demand structure of U.S. debt has still not improved. From the historical trend, gold prices and real yields show a more consistent negative correlation, interest rates continue to rise, gold will be under significant pressure; at the same time, the rise in real interest rates, which means that the cost of corporate finance is rising, the U.S. stock market will be under greater pressure on the highly valued sectors.
3, what can the Fed do? There are two main types of measures that the Fed can take at the moment, one is Operation Twist (OT); the other is Yield Curve Control (YCC). Twist operation refers to the Fed can buy long-term Treasuries and sell short-term Treasuries through open market operations, thus changing the maturity structure of its own holdings. Yield curve control refers to the central bank’s ability to control some of the long-end interest rates within a set target range by buying and selling Treasuries. In retrospect, the U.S. has adopted twist operations twice, most recently in 2011-2012, when the average real yield on long-term Treasuries fell by 77 BP; the countries that currently use YCC are Japan and Australia, and the U.S. also used it in 1941-1951.
During the last round of Operation Twist, the US dollar strengthened, US bond yields fell, and US stocks outperformed crude oil and precious metals; during the yield curve control period, US stocks also performed spectacularly. Looking further, we see that value stocks outperformed growth stocks in the U.S. equity sector during the distortionary operation; non-essential consumer and financial sectors outperformed other sectors, as did healthcare, real estate, industrials, information technology, and communication equipment.