Short-term US government debt sells off sharply on inflation surge

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Short-term US Treasuries plunged on Wednesday after the Labor Department reported that consumer prices soared last month, stressing the Fed’s need to take more decisive action to slow inflation.

The two-year Treasury bond, which is highly sensitive to interest rate expectations, has risen most sharply since the market plunged during the March 2020 coronavirus crisis. Yields reached a high of 0.51% and rose to 0.08. Percentage refers to 0.50 percent, indicating a significant drop in price. The biggest move was the five-year yield, which was 1.19 percent, up 0.11 percentage points.

Maturity last week after Federal Reserve Chairman Jay Powell vowed to take a “patient” approach to raising interest rates in the hope that such high levels of inflation would be expected to be momentary. The price of short bonds has risen.However Data released on Wednesday It shows that US consumer prices rose 6.2% from the same month to October 2020, well above expectations of 5.8%, questioning its commitment.

Tom Graf, Head of Fixed Income at Brown Advisory, said: “The pressure on certain responses is terrible,” Graf said, saying that if inflation continues at this rate, central banks will accelerate quantitative tightening and could end this winter.

Eurodollar futures are indicators that closely monitor market expectations for rising interest rates, with investors setting prices with a 75% chance of a 75% rate hike in June 2022 and a 100% rate hike in July. Indicates that you are doing.

Chris Jeffrey, Head of Interest Rates and Inflation at Legal & General Investment Management, said:

Such moves could limit economic growth, he added. [the central bank] You need to move the rate hike forward and then eliminate the rate hike. ”

According to Bloomberg data, the five-year break-even inflation rate, an important market indicator of inflation, has risen to a record high of 3%, reflecting where investors expect inflation in five years. bottom.

Long-term government bonds, which provide a snapshot of investor expectations for future economic growth and inflation, have seen more measured sold-outs. However, benchmark 10-year bond yields rose 0.07 points to 1.52 percent, the highest level of the week.

The dollar index, which measures the US currency, rose 0.6 percent against the other six.

Global concerns about inflation are also inflamed by data released earlier Wednesday, Chinese producer price inflation The measure of how much companies pay each other for goods in October increased by 13.5% from the same period last year. This is the biggest leap in 26 years as the factory has absorbed the rise in energy prices.

Growing concerns about rising global prices have also affected bond markets in the UK and Canada. The UK and Canada show that central banks are ready to fight rising prices. Two-year gilt yields rose 0.11 points to 0.55 percent. Equivalent Canadian bond yields added 0.08 percentage points to reach 0.99 percent.

However, the stock market largely ignored inflation data.The latest information on corporate profits Shown Companies are passing higher prices on to their customers rather than sacrificing profits.

S & P 500 Longest streak A 0.2% drop on Monday, the highest ever since 1997. The technology-focused Nasdaq Composite fell 0.5%. Technology stocks are vulnerable to inflation because their valuations are often based on future growth and their outlook is compromised by rising prices.

The European STOXX 600 index, which rose in 16 of the last 20 sessions, rose 0.2%.

Asian markets fell almost on Wednesday in response to a surge in Chinese factory gate inflation, which L & G Jeffrey said “would dent.”Optimism About seeing some monetary policy action from Beijing to support the country’s sick real estate sector. ”

China’s CSI300 stock index fell 0.5%, while Tokyo’s Nikkei 225 fell 0.6%.

Other market movements:

  • US $ high yield bond issuance exceeds $ 466 billion annually, already above the full-year 2020 total of $ 460 billion. On Wednesday, GE announced a tender offer for $ 23 billion in bonds as a further indicator of how wide the open capital markets are for companies considering refinancing and debt repayment.

  • Brent crude, the oil benchmark, fell 0.8% to $ 84.12 a barrel.

Short-term US government debt sells off sharply on inflation surge Source link Short-term US government debt sells off sharply on inflation surge

The post Short-term US government debt sells off sharply on inflation surge appeared first on California News Times.

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