Original title: Global inflation can hardly be “temporary”, Morgan Stanley warns of a big rebound in U.S. bond yields
[ 目前10年期美债收益率的合理估值应该在1.6%，而不是不到1.2%。 ]
Recently, U.S. stocks have once again set new highs in the strong earnings season, Asia-Pacific stock markets have temporarily stabilized, and U.S. bond yields have dropped to a staggering level of less than 1.2%.
But Morgan Stanley interest rate strategist Guneet Dhingra recently said that the market may have significantly underestimated the fair level of U.S. Treasury bond yields. Taking into account the current economic recovery, employment and positions, the yield should be 1.6%. “Even if the Delta virus causes the epidemic front to stretch again, if the United Kingdom is used as a forward indicator for the United States, as the number of cases increases, the number of hospitalizations in the United Kingdom is still not high, the economy continues to restart, and eventually the number of cases begins to decrease. The downside risks of the epidemic have been exaggerated.” Fed Governor Waller also said recently that he expects to announce QE (quantitative easing) reductions in October.
During March 2021, the 10-year U.S. Treasury yield hit a high of 1.7% from the previous 0.9%, leading to a sell-off in major capital markets such as U.S. stocks and A-shares. Therefore, the agency also reminded that it should not be taken lightly just because U.S. Treasury yields remain low temporarily. Moreover, for the time being, global inflation may not be “temporary.”
Be wary of U.S. bond yields to counterattack again
Morgan Stanley believes that positions often explain most market changes, but they do not necessarily prove that the market’s judgment is correct.
“We must avoid falling into the trap of thinking that U.S. Treasury yields will remain low. This is a trap that investors experienced only 4 months ago-U.S. Treasury yields rose sharply in March, mainly due to Japanese investors Based on considerations at the end of the fiscal year, we dumped U.S. Treasuries. However, at that time, most investors mistakenly regarded the soaring yield as proof that the economy was overheating. At that time, all walks of life agreed that the yield would exceed 2%. We warned investors at the time. Due to the reality of economic fundamentals, the yield has been too high. In the next few weeks, the US economic data could not keep up with unrealistic expectations, and the yield on the 10-year U.S. Treasury began to fall.” Dinghella told reporters Said that there may also be misjudgments in the current market, but the direction of misjudgments is exactly the opposite of that in March.
In his view, the current reasonable valuation of the 10-year U.S. Treasury yield should be 1.6%, not less than 1.2%. “This is largely due to the fact that the negative news impact of the new crown epidemic has been amplified in recent weeks. In our view, the level of yield does not properly reflect the strong US economy or the Fed’s position. As the market position judgment becomes clearer , It is expected that U.S. Treasury yields will rise in the next few weeks.”
Coincidentally, many organizations believe that all walks of life have overestimated the impact of the virus on the economic recovery of developed countries and underestimated the current strength of the US economy.
Wang Qian, chief economist of Vanguard Asia Pacific, the US “public fundraising brother”, previously told CBN reporters that the US economy is in the early stage of entering the mid-term stage, and is still in a period of accelerated recovery, not in the middle and late stages of the economic cycle. Even if the economic recovery starts to slow down, the speed is not low.
She predicts that the US economic growth rate will remain between 3.5% and 4% in 2022, which far exceeds the potential economic growth rate, which means that the US output gap will be positive by the beginning of 2022. At the same time, even though the Delta virus will increase the infection rate, the vaccination process in the United States is relatively ideal, effectively reducing the hospitalization rate and mortality rate. In addition, the US government has a higher tolerance for the number of infections, so even if the number of infections rises, the impact on the economy will not be great. More importantly, Wang Qian believes that the United States may also introduce fiscal stimulus plans to boost inflation and growth, and “re-inflation transactions” will come back, which may boost U.S. bond yields.
In addition, Dingela also said that the current 10-year Treasury bond yield means that the market believes that the Fed will initiate the first rate hike in March 2023 and maintain the rate of 1.5 times a year. However, he believes that the implied rate of interest rate increase is too low, especially since the “dot map” in June this year has shown that six FOMC (United States Open Market Committee) members predict that interest rates will be increased 3 to 4 times a year in the future. Therefore, the level of 10-year U.S. Treasury yields is obviously greatly underestimated.
The key is, what will really become the catalyst for the renewed surge in U.S. bond yields? Dingela believes that the July employment report may be a potential motivation.
“Our chief U.S. economist Ellen Zentner predicts that the non-agricultural employment report in July will show that the number of new jobs will be slightly more than 1 million. This bright data may trigger a rise in yields. If the school opens in August, it may further promote the strong growth of the job market. In addition, we expect that housing inflation will strengthen, which will support the continued rise in inflation. At the same time, we expect a fiscal stimulus plan of US$2 trillion later this year. , Which will further boost the yield rate.” He said.
The non-agricultural employment data in the past few months have been lower than expected. All walks of life believe that this is related to the American people’s unwillingness to go out for work due to concerns about the risk of infection, childcare needs, financial subsidies and other reasons. However, starting in the fall, the number of new jobs may be added Will return to normal. Matt Simpson, a senior analyst at Jiasheng Group, told reporters that the United States’ rents, mortgage allowances, and special unemployment benefits in the United States are all expired, and it is basically clear that they will not be renewed, and this also means that those who did not work before. The American people are forced to resume work, which may mean that non-agricultural employment data will gradually return to normal.
The high probability of this round of inflation is not “temporary”
The outlook for inflation is also crucial to the judgment of future U.S. bond yields. The current consensus is becoming clearer-the Fed’s statement that “inflation is only temporary” may not hold up at all, and the actual inflation is likely to continue at a relatively high level.
The “temporary inflation theory” is mainly to appease the market’s concerns about inflation from a technical perspective. On the one hand, the soaring oil prices and second-hand car prices have led to the recent surge in overseas inflation. Although this cannot be sustained, inflation will naturally fall after the base factor is removed next year. But in fact, the level of inflation will far exceed that before the epidemic.
First of all, the inflationary pressure exported from the US as the center is hardly temporary. At present, the new crown epidemic is not temporary. Although hope can be pinned on the third shot, it still takes time. Therefore, people from all walks of life believe that it is difficult for inflation to be temporary.
Simpson told reporters that the epidemic will have a negative impact on production and production efficiency, and many labors cannot return to normal under such circumstances. People are still worried that work will be infected by the virus, which will cause labor supply and industrial chain supply difficulties. At the same time, in order to prevent the economy from falling into recession, the United States will use extremely loose and proactive monetary and fiscal policies to hedge. The result of this is that there are fewer people working and less output, but demand does not decrease but increases, and inflation will naturally rise.
In addition, the trend of anti-globalization is difficult to reverse. The epidemic has accelerated the already accelerating trend of anti-globalization. In general, the global economy is shifting from a model of maximizing economic benefits to a model where safety comes first and economic benefits come second. The reversal of the global division of labor and the maximization of economic benefits brought about by globalization will undoubtedly increase the cost inflation of almost all products and services in the long run.
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