Investors are puzzled by the strange trend in U.S. debt...

Investors are puzzled by the "strange" trend in U.S. debt...

Reference News Network reported on July 19, according to the British "Financial Times" website reported on July 17, following the largest surge in inflation in more than a decade, the price of U.S. Treasury bonds continued to rise, which broke the common reliable model and made investors Anxious to figure out what happened in the world's largest bond market.

　　 Generally speaking, inflation is bad news for bond prices. It will cause the fixed income of bonds to shrink and increase the possibility that the central bank will raise interest rates to respond to inflation.

　　 But in recent months, this relationship has reversed, at least for medium and long-term bonds. The price of U.S. Treasury bonds has risen sharply — bonds of other countries around the world are not far behind. This has reduced the 10-year U.S. Treasury bond yield from 1.75% at the end of March to less than 1.3% in the past week, the lowest point in more than three months.

　　 Mike Riddle, investment manager of Allianz Global Investment Fund, said: "Now, many people are confused. On the surface, this trend seems to be completely opposite to expectations."

　　Investors believe that the Fed’s recent signal—that it is becoming more sensitive to rising inflation—is one of the reasons why government bond prices continue to rise. In June of this year, after the Federal Reserve announced its policymakers’ expectations on interest rates, Wall Street was once on high alert.

　　 Federal Reserve Chairman Jerome Powell advised market participants not to over-interpret these single expected data and urged them to wait patiently for the government to finally cancel the support policy. But he also admitted that the Fed may need to deal with price pressures that exceed expectations.

Powell said at a hearing in Congress on the 15th: "We are experiencing a situation where inflation has risen sharply-the increase has exceeded many people's expectations, and it must have exceeded my expectations. We are trying to figure out that this is the case. It will pass soon, or we need to take action. In any case, we will not enter a long-lasting period of high inflation, because of course we have a way to solve this problem. But we don’t want to use them or fight in unnecessary circumstances. Stop the momentum of the economic rebound."

　　 In addition, Fed officials have recently admitted that they have begun discussions on reducing the size of their monthly purchases of US$120 billion in U.S. Treasury bonds and mortgage-backed securities. This change in position has led many investors to believe that the Fed’s tolerance for the prospect of out-of-control inflation will be lower than previously expected.

　　 Abrdn’s bond fund manager James Assi said: “The Fed has actually erased some of the more extreme situations that the market is worried about. The more the expectations of interest rate hikes become popular, the less inflation will get out of control.”

The increasing number of new crown cases related to the more contagious delta strain has caused people to start worrying again that the economic prosperity brought about by the reopening of most of the world’s economies will hardly be as high as what economists gave earlier this year Very optimistic expectations. But as the securities market has risen to near historical highs, investors are reluctant to conclude that the current state of the bond market (which is attractive in difficult times) indicates that the outlook for the global economy is becoming bleak.

　　 On the contrary, many people still believe that the reason is investor positioning (referring to the overall bullish or bearish interpretation of professional investors in a particular asset class-Note on this website). Since the Fed's meeting in June, it has often been regarded as the chief culprit for the volatility of the bond market. In the first quarter of this year, when investors were preparing for the reopening of the U.S. economy and the return of inflation, a large part of their bets were on rising long-term yields and the Federal Reserve will keep short-term yields unchanged. Many subsequent market volatility can be explained by investors—often reluctantly—abandoning so-called "curve steepening transactions."

Editor in charge: Zhang Yu