US Long-Term Treasury Yields Surpass 4.2% as Major Indices Plunge Over 2%

Yields on U.S. long-term government bonds climbed again today, with the 10-year Treasury yield breaking above 4.2%, while short-term Treasury yields rose in tandem. Rising yields mean investors are demanding higher returns to offset inflation risks and the potential risks of the massive U.S. national debt. The market reacted strongly, with the S&P 500, Nasdaq, and Dow Jones Industrial Average all closing lower, each falling by more than 2% in their steepest declines in nearly a month.

The upward trend in long-term Treasury yields is primarily driven by the widening U.S. fiscal deficit and heightened expectations of interest rate hikes by the Federal Reserve. Since 2022, to stimulate the economy and cope with global supply chain bottlenecks, the U.S. government has continuously issued Treasury bonds to cover its fiscal shortfall. Although the Federal Reserve completed three rate hikes by the end of 2023, the market remains concerned that inflationary pressures have not fully abated, with expectations that interest rates could rise again in the future. Coupled with the expansion of Treasury supply, investors have pushed up yields to compensate for anticipated risks.

The widespread decline in the stock market stems from the direct impact of rising yields on corporate capital costs. When bond yields rise, corporate borrowing costs follow suit, compressing expected profit margins and causing investors to lose confidence in high-valuation technology stocks and highly indebted companies. In addition, rising yields may prompt investors to shift funds from risk assets to safe-haven assets, further squeezing stock prices. Market sentiment has turned cautious, causing most sectoral indices to fall simultaneously.

From a macroeconomic perspective, rising yields will drive up borrowing costs for businesses and consumers. Mortgage and auto loan rates are often pegged to long-term Treasury yields; if these rates continue to rise, they will suppress the housing market and consumer spending, thereby affecting overall economic growth. To cope with higher financing costs, companies may reduce investment and expansion plans, posing potential pressure on economic growth. When adjusting monetary policy, the Federal Reserve will have to strike a balance between curbing inflation and maintaining economic growth.

Global markets have also been affected by the rise in U.S. yields. European and Asian bond markets generally rose in tandem, and some emerging market countries saw currency depreciation due to foreign capital outflows. A stronger U.S. dollar has also increased the prices of dollar-denominated commodities, further fueling global inflation expectations. In terms of global asset allocation, investors will show a stronger preference for high-yield U.S. bonds, creating a negative impact on capital flows in other markets.

Future trends remain full of uncertainty. If the Federal Reserve continues to raise interest rates, yields could rise further, and the stock market may face greater pressure; conversely, if inflation recedes significantly, market sentiment is expected to recover. Investors need to closely monitor U.S. fiscal policy, inflation data, and the Federal Reserve's policy statements to gauge the direction of market risks. (Source of facts: Central News Agency)