"US 10-Year Bond Yield Rises Unusually... Must Guard Against Interest Rate Spike Risk"

On the 2nd, iM Securities warned that despite the US interest rate cut cycle, the 10-year US Treasury yield is rising, urging caution against the risk of a rate spike.

Previously, the US Federal Reserve (Fed) implemented a total interest rate cut of 1 percentage point, including a big cut in September, but the US Treasury yield rose by about 1 percentage point from a low of 3.6176% on September 16, just before the Federal Open Market Committee (FOMC) meeting in September.

Economist Park Sang-hyun noted, "The Fed's rate cut cycle is having no effect on the 10-year Treasury yield trend," adding, "It is a rare case to see the 10-year Treasury yield rising despite the ongoing Fed rate cut cycle."

He explained, "This rate cut cycle is an exceptional one, known as a recession cut, where rates are cut despite no recession. Along with stronger-than-expected US economic momentum, sticky inflation, and uncertainties surrounding Trump’s second-term policies, these factors are neutralizing the Fed’s rate cut effects and pushing Treasury yields higher."

He continued, "Regardless of the reasons behind the rise in Treasury yields, the important point is that if yields rise further from the current level, the so-called 'rate spike risk' could become visible not only in the US but also in the global financial markets."

He added, "At least in the US financial market, the economy’s strength provides some capacity to absorb shocks from further Treasury yield increases, but global financial markets outside the US are at high risk of experiencing spasmodic symptoms if US Treasury yields rise further."

Economist Park pointed out, "Simply put, if US Treasury yields rise further, the dollar’s strength will increase, amplifying concerns over emerging market currencies," citing Brazil as an example.

In Brazil, instability in some emerging currencies such as the real has materialized. Brazil responded with aggressive rate hikes to defend the real’s value. This suggests that if US Treasury yields rise above current levels, the risk of rate spikes could fully materialize in some emerging financial markets as well.

Economist Park also said, "The crucial turning point is likely to be January," forecasting, "Financial markets will focus on the US consumer price index released in January and the concrete details of the second-term policies to be clarified along with Trump’s inauguration."