As the countdown to the last day of the Fed’s December interest rate decision, a burst of U.S. PPI data on Tuesday (December 14) once again consolidated the market’s expectations that the Fed will issue a hawkish statement this week. U.S. Treasury yields in each cycle rose across the board on Tuesday. Although they gave up most of the gains since the release of the PPI at the end of the trading session, the three major U.S. stock indexes fell significantly for the second day in a row. Market data showed that the benchmark 10-year U.S. Treasury yield rose by 2.64 basis points to 1.448% in late trading overnight. It soared rapidly at the beginning of the PPI data release that day, but has since fallen again as the market’s risk aversion sentiment heats up. Almost all other cycles showed similar market changes. The yield of the 2-year U.S. Treasury rose by 2.04 basis points to 0.667% in late trading, the yield of the 5-year U.S. Treasury rose by 3.17 basis points to 1.241%, and the yield of the 30-year U.S. The bond yield rose 2.7 basis points to 1.830%. According to data released by the US Department of Labor on Tuesday, the US Producer Price Index (PPI) set a record year-on-year increase of nearly 10% in November. This soaring momentum is expected to support inflationary pressures to continue to be high for a long time in 2022. Among them, the November final demand PPI rose 0.8% month-on-month and 9.6% year-on-year, both of which exceeded economists’ expectations. Excluding volatile food and energy, the core PPI rose by 0.7% month-on-month, and the year-on-year increase reached a record 7.7%. Analysts pointed out that due to transportation bottlenecks, strong demand and labor shortages, the cost of raw materials in the United States has risen rapidly this year. Many companies have successfully passed on these increased costs to customers through price increases, and the latest PPI report also indicates that consumer prices may rise further in the next few months. Data released last Friday showed that the consumer price index (CPI) of US residents rose 6.8% year-on-year in November, the fastest growth rate in nearly 40 years. Ben Jeffery, interest rate strategist at BMO Capital Markets in New York, said, “Tuesday’s market trend was mainly affected by inflation data, which to some extent led people to sell bonds, even if it was just adjusting positions before the results of the Federal Reserve meeting on Wednesday. ” US stocks were also under pressure with US debt overnight. The three major U.S. stock indexes fell for the second consecutive trading day on Tuesday, with 10 of the 11 major sectors of the S&P 500 falling. Large technology stocks led the decline, with Salesforce, Microsoft, Adobe and Alphabet having the most significant drag on the S&P 500 and Nasdaq. After the S&P 500 index set a record closing high late last week, the rapidly spreading Omi Keron variant also dampened investor sentiment. South Africa recently released a report this week showing that the effective rate of two doses of Pfizer vaccine against Omi Keron strain is only 33%. Due to the emergence of new doubts surrounding the effectiveness of the vaccine against the Omi Keron mutant strain, and the results of the Federal Reserve meeting have not yet been announced, market participants are now maintaining a cautious stance. U.S. Treasury futures were sold short before the Fed’s decision At 3 o’clock in the morning Beijing time on Thursday, investors in global financial markets will hold their breath together to wait for the Fed’s final decision during the year. The interest rate resolution will release the latest economic forecasts and interest rate dot plots. At present, investors have almost digested the expectation that the Fed’s bond purchase plan will end sooner, and have begun to prepare for multiple interest rate hikes in the next few years. It is worth mentioning that before the announcement of the interest rate decision tonight, many shorts have already taken action in the U.S. bond futures market in advance. In the past week, they have short U.S. 5-year Treasury bond futures through block trades one after another. The block trade appeared on Tuesday. Bloomberg statistics show that since last Monday, shorts have sold nearly 74,000 5-year Treasury bond futures through 12 block trades, which is equivalent to nearly 4 million US dollars in cash per basis point. The latest block trade appeared at 3:50 AM on Tuesday, New York time, with a size of 6,000 lots. During the same period, the open positions of the futures increased by 88,321 lots. Block futures transactions are large-value transactions that involve private negotiation and bargaining, and tend to attract asset management companies that need to execute large positions with minimal price sensitivity. The timing of the emergence of these large transactions is obviously particularly eye-catching-the Fed is expected to announce tonight that it will accelerate the pace of debt reduction. If the increase starts in January, the Fed’s bond purchase plan will end on the ninth working day of March, thus opening the door for interest rate hikes. The aforementioned large futures bets in the market have obviously also affected the volatility of the bond market. The 5-year U.S. Treasury yield has risen from around 1.13% at the beginning of the month to the current 1.24%, and the spread between its 10-year and 30-year U.S. Treasury yields is rapidly narrowing. In any case, the Fed resolution tonight is a huge test for investors in the fixed income market and other fields. The latest survey results released by Bloomberg and Bank of America this week both show that hawkish central banks or policy errors are being seen as the biggest tail risk in the market right now. If the Fed’s hawkishness tonight exceeds market expectations, it is likely to further aggravate the ups and downs of the global equity and bond exchange market.
Post time: Dec-15-2021