"US Treasury Yields Decline... Investors More Concerned About Low Growth Than Inflation"

WSJ "Low Employment Rate and Delta Variant Spread Heighten Concerns Over Low Growth"

[Image source=AP Yonhap News]

[Asia Economy Reporter Kim Suhwan] As U.S. Treasury yields have been rising for the past month, an analysis suggests that investors perceive low growth, rather than inflation, as the main threat to the U.S. economy.

On the 21st (local time), the Wall Street Journal (WSJ) reported this, emphasizing that "the recent decline in the U.S. stock market highlights that investors see low growth as a bigger threat than inflation."

The outlet noted that the persistent weakness in U.S. Treasury yields supports this investor sentiment.

On that day, the yield on the 10-year U.S. Treasury note stood at 1.279%, continuing its decline since reaching 1.3% on the 16th. This is about 0.5 percentage points lower than the year's high of 1.749% recorded in March.

Earlier, U.S. Treasury yields had risen to pre-COVID-19 pandemic levels as explosive economic recovery in the U.S. was anticipated at the beginning of the year.

However, with the U.S. employment rate still not recovering to pre-pandemic levels and the spread of the Delta variant, negative outlooks on the global economic recovery emerged, which WSJ analyzed as a factor pulling down Treasury yields.

An analyst from global financial firm Standard Chartered told WSJ in an interview, "Investors showed optimism about employment recovery and expanded vaccinations since early this year, but recent sharp increases in COVID-19 cases have left investors visibly disappointed."

Typically, in an inflationary environment, central banks are more likely to raise benchmark interest rates, which naturally leads to higher Treasury yields. However, despite the U.S. Consumer Price Index (CPI) rising 5.4% year-over-year last month?the highest since 2008?Treasury yields have been declining, which WSJ reports as evidence that investors are more concerned about low growth than inflation.

There is also analysis that rapid consumer price increases exacerbate concerns about low growth.

Ian Lingen, an analyst at BMO Capital Markets, said, "The current decline in Treasury yields indicates that the ongoing inflation is not a sign of an overheating economy."

According to this perspective, WSJ reported that investors have recently been concentrating on purchasing high-risk assets. The fact that corporate bond yields have been falling daily while stock indices hit record highs supports this evidence, the outlet added.