"Interest Rate Hike Due to Supply-Demand Pressure, Fed Expected to 'Soothe the Market'"

Daishin Securities on the 3rd expected that if the recent rise in market interest rates is due to supply and demand pressures rather than concerns over a pivot (policy shift) delay, the US Federal Open Market Committee (FOMC) will take steps to "calm the market" this month.

Regarding the recent approach of the US 10-year Treasury yield to the level last seen in April, when it reached its highest point this year, Gong Dong-rak, a researcher at Daishin Securities, explained, "It is difficult to view the rise in interest rates as directly driven by fears that the schedule for cutting the benchmark interest rate might be delayed due to unstable inflation trends," adding, "This is because expected inflation showed only very limited fluctuations during this rise in interest rates."

Researcher Gong further analyzed, "Considering that recent outlooks on the US economy are gradually leaning toward a downturn, this rise in interest rates was significantly influenced by concerns over supply and demand," and noted, "The term premium, an indicator used to reflect the bond market’s response to long-term bond supply and demand conditions, has rebounded to positive territory since April, indicating increasing pressure on supply and demand."

He added, "Current interest rates show trends very similar to the situation last November’s FOMC, when elevated market rates led to mentions of tightening financial conditions and efforts to calm the market," and predicted, "If the real cause of the interest rate rise lies in supply and demand issues rather than an increase in expected inflation, it is unlikely that the monetary authorities will express a hawkish stance at this month’s FOMC."

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