Interest rates on U.S. government bonds jumped to a 16-year high on the prospect that the U.S. high-interest rate policy will be longer than expected. Financial market uncertainty increased as the dismissal of the U.S. House of Representatives speaker for the first time in constitutional history was added.
On the 3rd (local time), the U.S. 10-year Treasury bond yield, the global benchmark, surpassed 4.81% during the day in the New York bond market. This is a 0.13 percentage point jump from the previous trading day. The 10-year U.S. bond rate has been on the rise since it surpassed 4.5% on the 27th of last month.
The 30-year Treasury bond yield also rose to 4.95% during the day. Both the long-term 10-year and 30-year interest rates hit new 16-year highs since 2007, just before the financial crisis.
Long-term government bond interest rates have soared due to the prospect that the U.S. economy is stronger than expected, which could prolong the Federal Reserve’s tightening. The observation that the era of “high interest rates and high prices” could begin in earnest is gaining momentum.
In fact, according to the Job Openings and Transfer Report (JOLTS) released by the U.S. Department of Labor on the same day, the number of job openings for private companies turned to 9.61 million in August. 810,000 more than Wall Street estimates (8.8 million). The number of job openings for private companies fell from 10.32 million in April to 8.92 million in July, but turned to an increase again.
Fed Vice Chairman Michael Barr and Federal Reserve Bank of Cleveland President Loretta Mester also emphasized the prolonged austerity, saying in their speeches the previous day, “We will need more time to achieve our goals” and “The Fed’s work is not over.”
Wall Street Emperor Jamie Dimon warned on Bloomberg TV that “the Fed is likely to continue to raise interest rates to 7 percent,” adding, “We need to prepare for a surge in interest rates.”
Financial market instability has increased the preference for safe assets. On the London ICE Futures Exchange, the dollar index, which reflects the value of the dollar against the six major currencies, rose to 107.35 in the morning, the highest level since November last year.
On the other hand, the Dow Jones Industrial Average (-1.29%), the Standard & Poor’s 500 (-1.37%), and the Nasdaq Composite (-1.87%) all fell. In particular, the Dow Jones 30 Index recorded its biggest drop since March 22.
There are also concerns that the dismissal of House Speaker Kevin McCarthy will further increase financial market instability. This is because the U.S. has only handled the 45-day temporary budget, so if the House leadership vacuum is prolonged, the possibility of a federal shutdown will increase.
Some analysts say that the aftermath of a surge in bond interest rates could raise the liquidity crisis in the financial sector. They say that rising bond interest rates could lead to a series of bankruptcies in the banking sector, where asset valuation declines, causing a bank run crisis.
MarketWatch pointed out, “The sudden surge in bond interest rates is leading to an increase in unrealized losses in the banking sector.”
TED PARK
US ASIAJOURNAL
