US Treasury Prices Fall for 12 Consecutive Weeks... Entering a Bear Market for the First Time in 38 Years

[Asia Economy Reporter Hwang Seoyul] The U.S. Treasury market has entered its longest bear market in 38 years as liquidity in the market decreases due to the Federal Reserve's (Fed) big rate hikes.

According to Bloomberg on the 21st (local time), the 10-year U.S. Treasury yield, a key market interest rate indicator, rose by 0.23 percentage points this week to 4.26%, marking a 12th consecutive week of increases. Rising bond yields mean falling bond prices, and Bloomberg reported that the 10-year U.S. Treasury price has fallen for 12 consecutive weeks for the first time since the tenure of former Fed Chairman Paul Volcker in 1984.

Former Chairman Volcker curbed inflation in response to stagflation (economic stagnation combined with inflation) in the late 1970s to early 1980s by implementing drastic interest rate hikes.

The market predicts that the U.S. benchmark interest rate will rise to as high as 5% in the first half of next year, suggesting that the Treasury market's bearish trend will continue.

In fact, the overnight index swap (OIS) rates, which represent the one-day short-term lending rates between financial institutions, exceeded 5% on this day for both the March and May 2024 contracts. These rates were below 4.7% as of the 13th but rose to 5% following the release of the core Consumer Price Index (CPI) last month, which was higher than expected.

To curb U.S. inflation, which has reached its highest level in 40 years, the Fed raised the benchmark interest rate by 0.75 percentage points three consecutive times until last month, pushing the upper bound to 3.25%. However, since inflation remains unchecked, there is a possibility that the Fed will raise the benchmark rate by the same amount again in November and December.

As central banks in several countries outside the U.S. have also begun monetary tightening, the Bloomberg Aggregate Bond Index, which tracks bond prices, has fallen 25% from last year's peak. Bloomberg stated, "This is at least the first global-scale bond market bear market in the past 30 years, and signs of a rebound are hard to find."

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