"Short-term rise possible up to 2.13%"
"Stock market pressure likely to intensify if trend rise begins"
[Asia Economy Reporter Hyunwoo Lee] As the yield on the U.S. 10-year Treasury bond approaches the "magic number" of 2%, which is considered an indicator of fund movement from stocks to bonds, global investors' attention is focused on this development. With recent sharp inflation increases, the U.S. Federal Reserve's (Fed) interest rate hikes are expected to be imminent, leading to anticipated significant volatility in global stock markets.
On the 8th (local time) in the New York bond market, the yield on the U.S. 10-year Treasury bond rose by 4.6 basis points (1bp=0.01%) from the previous session to 1.965%. During the session, it climbed to 1.97%, marking the highest level since November 2019.
On this day, U.S. Treasury yields rose amid concerns over a sharp increase in the U.S. Consumer Price Index (CPI) for January, scheduled to be released on the 10th. According to CNBC, market experts forecast that the U.S. January CPI will rise 0.4% month-over-month and 7.2% year-over-year, marking the highest level in 40 years. If the CPI surge intensifies inflation concerns, it could also impact the Fed's anticipated interest rate hikes expected to begin in March.
Major investment banks have already projected that the Fed will raise interest rates at least four times and up to seven times starting in March. According to the Wall Street Journal (WSJ), Goldman Sachs and Morgan Stanley expect the Fed to raise rates four times after March, Deutsche Bank anticipates five hikes, and BNP Paribas predicts six.
Bank of America (BOA) has even suggested the possibility of seven rate hikes. Accordingly, the market expects the U.S. 10-year Treasury yield to soon surpass the so-called magic number of 2%. The magic number refers to the indicator where investment funds previously allocated to stocks move into bonds.
Katie Stockton, a technical analyst at U.S. investment firm Fairfield Strategies, told CNBC, "If the 10-year Treasury yield closes above 1.79% throughout this week, a trend of rising yields will continue," adding, "The Treasury yield is expected to rise to 2.13% in the short term."
If the upward trend in Treasury yields continues, there are forecasts that funds will exit the stock market, causing major indices to decline. Sam Stovall, chief strategist at U.S. investment research firm CFRA, analyzed, "If Treasury yields rise above the magic number, it will provide investors with a psychological baseline indicating that rates will continue to rise, which could trigger greater selling pressure in the stock market and deepen the downturn."
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