[Good Morning Stock Market] Volatile US 10-Year Treasury Yield... Eyes on Fed's Moves

US 10-Year Treasury Yield Surpasses 1.69% Intraday
FOMC Changes Stance on Inflation... "Fed Chair Powell Will Focus on Controlling Inflation Rate"

[Image source=Yonhap News]

[Asia Economy Reporter Gong Byung-sun] The U.S. 10-year Treasury yield showed volatility amid employment improvements and inflationary pressures. Market attention is focused on the future actions of the U.S. Federal Reserve (Fed), including the Federal Open Market Committee (FOMC) officially acknowledging a shift in its view on inflation.

On the 24th (local time), the New York stock market was mixed. At the New York Stock Exchange, the Dow Jones Industrial Average closed at 35,804.38, down 0.03% (9.42 points) from the previous trading day. The S&P 500 index closed at 4,701.46, up 0.23% (10.76 points) from the previous session. The tech-heavy Nasdaq closed at 15,845.23, up 0.44% (70.09 points) from the previous day.

◆ Seo Sang-young, Researcher at Mirae Asset Securities = The U.S. 10-year Treasury yield rose above 1.69% during the session. This is estimated to be influenced by employment improvements and the spread of inflationary pressures. In fact, the U.S. personal income for October, released on the 24th (local time), increased by 0.5% month-over-month, better than the previous month's figure. Consumer spending also rose by 1.3% month-over-month, exceeding last month's level. Notably, the core Personal Consumption Expenditures (PCE) deflator rose 0.4% month-over-month. The year-over-year increase was 4.1%, the highest since its release in 1991.

Meanwhile, Mary Daly, President of the Federal Reserve Bank of San Francisco, known for her dovish stance, argued that if the labor market continues to improve and inflation rises, the Fed should accelerate asset purchase tapering. Just last week, Daly had mentioned maintaining the current tapering pace, but her remarks now seem aligned with the hawkish tone of other Fed officials.

However, concerns about the spread of COVID-19 in Europe remain high. Silvana Tenreyro, a member of the Bank of England (BOE), stated that while moderate tightening policies are expected, she is not currently discussing rate hikes in December or February next year. Additionally, Jens Weidmann, President of the German Central Bank, mentioned that Germany's growth rate could slow more than expected and predicted that German inflation, which peaked near 6%, will fall below 3% by the end of next year.

As a result, U.S. long-term yields reversed to a decline. Although remarks from European officials had some impact, the retracement following recent rises is believed to have had a greater effect.

[Image source=Yonhap News]

◆ Woo Hye-young, Researcher at Ebest Investment & Securities = A notable point in the November FOMC minutes was the acknowledgment of uncertainty regarding the inflation path and the mention that if high inflation persists, the Fed could expand tapering to prepare for rate hikes. The Fed expects inflationary pressures to last longer than anticipated but forecasts a significant decline in inflation next year as supply-demand imbalances are resolved.

However, the Fed also indicated increased uncertainty about these projections, signaling a shift in its stance on inflation. Furthermore, it was confirmed that many officials are concerned about the persistence of inflation factors, implying that if high inflation continues, a response will be necessary.

It is judged that from the November FOMC meeting, an official change in the Fed's view on inflation began to be detected. Despite strong opposition from influential Democratic lawmakers such as Elizabeth Warren, President Joe Biden re-nominated Jerome Powell as Fed Chair, suggesting that Powell will focus on controlling high inflation rates.

Key points to watch at the upcoming December FOMC include whether discussions on adjusting the tapering pace will proceed, changes in the number of officials advocating rate hikes in the dot plot, and upward revisions to inflation forecasts. If inflation forecast uncertainty increases or the hawkish tone strengthens compared to the November meeting, the Fed is more likely to finish tapering quickly and prepare for interest rate hikes.

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