The world bond market is now in a daydream and does not know the exit
There are some surprising things happening since the US presidential election. In the financial sector, the only thing that can be said to be a snatcher is the price decline (= interest rate) of 10-year Treasury bonds.
It's a case of a financial company that is going to take a look at how the 10-year US Treasury bond price rise (US Treasury rally)
The selloff of these bond markets is a product of pure expectation, you know
I expect that Mr. Trump will lead to a period of strong growth in the future and this will be accompanied by higher inflation, supported by increased fiscal spending, massive tax cuts, and deregulation
The Trump trade is the market situation of a sharp fall in bond prices and a rise in interest rates, and I think that this trump trade is not going to last forever. There are too many unknown factors in his policy. No one knows yet which mechanism will affect the economy when those policies are actually in reality.
For example, after the election, the dollar has already been so strong that it is already dropping US imports and pushing down inflationary pressures.
Why do you think the bond market continues to decline and bond yields are rising every day?
Because the current market is victorious in psychological control so that speculators can become powerful playgrounds
The term premium is a term premium that shows that bonds are also a product of psychology
Treasury's 10-year Treasury rate since the US election skyrocketed from 1.87% to 2.34%
However, the rise in interest rates was accompanied by a rise in term premiums over the same period, which is the basis for speculative market formation
Term premium is the risk that investors demand when they hold short-term securities on the same time horizon (for example, 10 years) continuously (= renew two-year treasury bonds 5 times) Is a reward for
This means that you have to keep your money for a long period of time and that you have more money because it can be dangerous in the meantime. This is why long-term deposit rates should be higher than short-term deposit rates.
However, if we think that the future economy will be so bad that it will lead to a downturn, and inflation will not be a dream, the term premium will become negative. The economy is getting worse and the central bank will continue to defend itself by defending itself from deficits Because of the view that interest rates will continue to fall.
In this case, as the time goes by, the demand for treasury bonds increases more and the value of government bonds goes up with the process of dropping the market interest rate. That is, the person who has the long-term debt from the beginning is a complete banker.
In this deflationary phase, term premium is of course negative.
The picture above shows the 10 year Treasury's Term premium one year trend
In the US presidential election, the term premium of minus 0.29% was 0.07% as of last Thursday
It is the first time that Term Premium has entered the positive territory since early January of this year.
If you have understood what I have written so far, you will know that the situation in which Term Premium becomes positive is a cost to you as a result of concerns that investors will underestimate how high the interest rate will form in the future
A strong sentiment that the term should be rewarded for long-term debt, such as 10-year Treasuries, will increase the US Treasury premium to a plus, as the economy will overheat in the future and interest rates will increase.
Inversely, even before the US presidential election, investors would see that the yield on government bonds would fall further, and that the US could go to negative interest rates like Europe and Japan. So, the price of government bonds will rise in the future. If you do that, it's all right. I mean, this psychology was overwhelming. It means that the hearing is reversed to Trump's election.
The election has completely broken the market atmosphere of 'low interest rates forever' and investors are panicked by losing a lot of money on this massive bond market, and the big losses in the market usually mean that the shock lasts long. I will not let you in. This psychology is strong.
Then the value of the bond will drop and the interest rate will rise.
This article is a supplement to the possibility of distorting the bond market due to the speculative capital of the government bond I wrote in the previous article. I think once again that the Fed or the Bank of Korea will be forced to raise the interest rate rapidly next year, I'll try to see it.
Take a good look at the graph above. The graph in negative territory throughout the year is vertically increasing to match Trump's election day.
Indeed, did the entire human race be led to a new heaven where Jesus could not have been in the US?