Source: Golden Ten Data

The sale of US Treasury bonds itself also played a role in tightening the US financial situationThis has now become the consensus of the market.

Since this year, the yield on US long-term bonds has risen sharply. In the past six months, the yield on 10-year treasury bonds has risen by about 1.5 percentage points, and the yield on 30-year treasury bonds has increased by about 1.4 percentage points.Although much attention has been paid to the Fed's policy interest rate, long-term bond yields are also benchmark yields, so they also have some influence on financial conditions.

Early in the last interest rate hike cycle,Greenspan, then chairman of the Federal Reserve, once pointed out the importance of long-term bond yields.At the time, he said, “In recent months, although the Federal Reserve raised the target interest rate for federal funds by 150 basis points, long-term bond yields are still on a downward trend. This development contrasts with most experience. Past experience shows that, other things being equal, increases in short-term yields are usually accompanied by increases in long-term yields.”

Greenspan further explained that the simple mathematical formula of the yield curve determines the relationship between short-term and long-term interest rates. For example, the yield on 10-year treasury bonds can be thought of as the average value of one-year forward interest rates for the next 10 years. The one-year forward interest rate is closely related to the federal funds rate. If the one-year forward interest rate rises, it will push up the yield on 10-year US Treasury bonds even if the longer-term interest rate remains unchanged. However,Historically, even longer-term forward interest rates have tended to rise in the face of tightening monetary policy.

“However,In the current situation, while long-term forward interest rates are falling, short-term interest rates are rising.In fact, the 10-year bond, which yielded 6.1% in June last year, currently yields about 5.25%. In the same period, comparable real forward interest rates derived from inflation-linked treasury bond quotes also declined sharply. This indicates a decline in nominal forward interest rates,Only part of it can be attributed to falling long-term inflation expectations...The unexpected behavior of global bond markets is still a problem.” Greenspan said.

There are clearly no problems this time around, which raises an interesting question:How much tightening will the rise in long-term treasury bond yields bring?

Deutsche Bank recently provided an estimate,It is believed that the sell-off of US debt is equivalent to helping the Federal Reserve complete the work of about “three interest rate hikes of 25 basis points.”

To arrive at this number, strategists aim to replicate the Federal Reserve's Financial Condition Index (FCI). In order to make a more responsive indicator,Deutsche Bank modeled the index's daily estimates, because the Federal Reserve's index is only published once a month.

Deutsche Bank said,The 10-year US Treasury yield — one of the FCI's seven indicators, reflecting the economic environment and banking prospects — definitely played a role.

Although interest spreads on corporate bonds, housing prices, and stock prices have slightly eased the financial environment, it is clear that 10-year US Treasury yields have had a huge counterproductive effect.

As a result,The Fed can take a sigh of relief, at least (or until) a relatively drastic market movement pushes yields in a different direction.

Editor/Jeffrey