US Consumer Prices Surge Most in 13 Years... Sharp Rise in Treasury Yields and Exchange Rates

US Inflation Surge Drives Treasury Yields Up
New York Stocks Fall After Ignoring Inflation Concerns
Dollar Strength Pushes Won-Dollar Exchange Rate Higher

[Asia Economy New York=Correspondent Baek Jong-min, Reporter Kim Eun-byeol] The US Consumer Price Index (CPI) for June recorded the highest increase in 13 years, causing a sharp rise in government bond yields and the won-dollar exchange rate.

On the morning of the 14th, the won-dollar exchange rate started at 1,150.7 won, up 5.3 won from the previous day, and showed a gradual upward trend, trading in the 1,151 won range. This surpassed the intraday high of 1,150.0 won recorded on the 9th.

The result came as the US June CPI inflation rate announced on the 13th (local time) recorded 5.4% year-on-year. It was the highest in 13 years and exceeded market expectations, which had predicted a 5% increase, the same as the previous month. The June CPI also rose 0.9% compared to the previous month. The core CPI, excluding fuel and food, also increased by 4.5%.

As inflation concerns resurfaced in the market, interpretations emerged that the US Federal Reserve (Fed) might start early tapering (reduction of asset purchases), leading to a stronger dollar. After the US CPI announcement, the dollar index rose to around 92.8, marking the highest level since April. Meanwhile, domestically, the number of new COVID-19 cases exceeded 1,600, setting another record high, which also fueled risk-averse sentiment.

With inflation concerns revived, the bond market also stirred. The results of the $24 billion 30-year US Treasury auction held that day showed weak demand, with the winning bid rate set at 2.0%. This was above the prevailing market interest rates at the time. Consequently, the 10-year yield rose to around 1.418%, and the 30-year yield climbed to 2.049%, each increasing by about 0.05 percentage points. This was the opposite of the recent trend where demand for US Treasuries increased amid recession fears, causing market rates to fall after auctions.

The sharp rise in US Treasury yields that day, reflecting the possibility of interest rate hikes, dragged down major New York stock indices and led to a stronger dollar. The 10-year Korean government bond yield was also trading at 2.039%, up 0.20% as of 10:16 a.m.

James Bullard, President of the Federal Reserve Bank of St. Louis, said in an interview with the Wall Street Journal (WSJ) that "with the economy growing at 7% and the pandemic well controlled, it is time to withdraw emergency measures." Mary Daly, President of the San Francisco Fed, also said that the Fed could start tapering by the end of this year or early next year.

Market turmoil is expected to settle only after confirming Federal Reserve Chair Jerome Powell’s testimony to Congress the following day. Powell is expected to continue to argue that the rise in inflation is temporary.

Professor Son Seong-won of Loyola Marymount University and CEO of SS? Economics said that rising housing rents and wages could further stimulate inflation, urging that "the Fed should set a timetable for tapering asset purchases at the next FOMC meeting."

This content was produced with the assistance of AI translation services.