The Zhitong Finance App learned that US Treasury yields rose for the second consecutive trading day on Thursday, and investors are awaiting an important speech by Federal Reserve Chairman Walsh at the annual meeting of global central banks in Jackson Hole on Friday. The market expects that in the face of continued high long-term US bond yields and inflationary pressure, Walsh may release hawkish policy signals to stabilize the long-term bond market.
On Thursday, US bond yields generally rose by about 1 to 2 basis points for each term. Among them, long-term treasury yields rose relatively significantly. Recently, long-term US debt continues to be under pressure, and investors are wary of America's inflation prospects and growing fiscal pressure. The 30-year US Treasury yield rose to about 5.2%. Earlier this month, the yield hit its highest level since 2007, and prompted the US Treasury to announce an increase in the scale of long-term treasury bond repurchases to ease selling pressure in the long-term market.
Despite actions taken by the Treasury, long-term yields remained high, indicating that market concerns about the US fiscal situation and the risk of inflation have not completely subsided.
In this context, Walsh's Jackson Hole speech on Friday became one of the most watched events in global financial markets this week.
Torsten Slok, chief economist at Apollo Global Management, said in an interview that Walsh may publish a “hawkish” economic outlook to avoid a further rise in long-term US bond yields. Slok believes that if Walsh does not provide a clear policy framework or forward-looking guidance to the market, long-term interest rates may face the risk of a further sharp rise.
Prior to Walsh's speech, Kansas City Federal Reserve Chairman Schmid said on Thursday that the current monetary policy does not restrict the US economy.
The Federal Reserve kept the federal funds rate target range unchanged at 3.5% to 3.75% during a recent policy meeting. Currently, the interest rate futures market anticipates that the Federal Reserve may raise interest rates by another 25 basis points before the end of this year.
Therefore, how Walsh evaluates the current interest rate level, inflation risk, and future monetary policy direction on Friday will directly affect the market's judgment on when to raise interest rates next.
However, the short-term interest rate market shows that not all investors think the Federal Reserve will act soon.
A large-scale federal funds futures deal appeared in the market on Thursday. One or more traders bought about 45,000 October federal funds futures contracts. The deal is in line with the Federal Reserve's expectations to keep interest rates unchanged until December. As of 9:30 a.m. New York time, the deal accounted for about one-third of the contract's total volume for the day, indicating that some funds are betting that interest rates will not be raised in the near future.
Meanwhile, the market still anticipates that the probability that the Fed will raise interest rates by 25 basis points in September is about one-third, reflecting that investors still have clear differences over the short-term policy path.
The US labor market data released on Thursday also provided some support for US bond yields.
According to the latest data, the number of initial jobless claims in the US fell from the previous week, indicating that the labor market is still resilient. As the Federal Reserve continues to pay attention to inflationary pressure, a relatively stable employment environment also means that the need for the central bank to quickly switch to easing policies in the short term is limited.
Overall, with the 30-year US Treasury yield rising back to 5.2%, market focus has turned to Walsh's Jackson Hole speech on Friday. Investors are particularly concerned about whether he will stabilize the long-term US bond market through hawkish policy statements, and whether it will provide new clues about the path of interest rate hikes in September and even before the end of the year.