Home Business Powell was re-elected, US Treasury bonds were sold off | Investing.com

Powell was re-elected, US Treasury bonds were sold off | Investing.com

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Yingwei FinanceInvesting.com – U.S. President Biden finally decided on Monday to nominate Powell as chairman of the Federal Reserve. This decision has long been expected. However, there was enough uncertainty in the market, the stock market rebounded, and bond yields rose as investors sold off.

Weekly chart of U.S. 10-year Treasury bonds, source: Investing.com

After the White House announced the appointment, it accelerated its rise, rising by more than 8 basis points. In the first trading day on Monday, the yield rose from less than 1.55% to more than 1.63%.

Although the progressives of the Democratic Party lobbied against the re-nomination of Powell, investors hoped that Biden would maintain stability and continuity. Because it is difficult to judge the influence of the progressives, and Biden’s policy choices are somewhat erratic.

The possibility of raising interest rates early

This nomination will be widely supported and confirmed by both parties in the Senate, which affirms Powell’s leadership at the Federal Reserve and enables him to fight inflation more actively if necessary. With the release of the monthly inflation report, it is more and more likely that monetary policy will be tightened in advance, and it cannot be ruled out that the possibility of faster bond purchases or interest rate hikes in mid-2022 cannot be ruled out.

Powell has been claiming that inflation is temporary for months. Although he has a high probability of not changing his opinion, he has begun to avoid his remarks and reiterated that the Fed is willing to keep inflation expectations unchanged.

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Critics say that the Fed has made a wrong judgment on the issue of inflation and has been slow to act, but it is Powell who holds the initiative. Re-election will definitely enhance his credibility.

Reforming the U.S. Treasury Market

A meeting of the Federal Reserve Bank of New York last week focused on the proposal to reform the U.S. Treasury bond market to avoid recurrence of the turbulent trading environment that occurred during the outbreak of the new crown pandemic in March 2020.

Gary Gensler, chairman of the US Securities and Exchange Commission, suggested that proprietary trading companies should be registered with the SEC because they play a greater role in transactions, because banks as major dealers face new changes on their balance sheets during the financial crisis. limits. Gensler also recommended the Central Clearing House to smooth the trading of U.S. Treasury bonds.

New York Federal Reserve Bank President Williams said that the chaos caused by the epidemic forced the Fed to launch a $1 trillion repurchase agreement, and at one point it caused the Fed to buy more than $300 billion in public debt every week. The repurchase program has now become permanent, but officials believe that more measures are needed to strengthen the resilience of the US Treasury market.

Hovering over the meeting is a concern that rising inflation may cause investors to sell public debt when expectations fall, which will trigger a new liquidity crisis similar to last year.

Covid-19 pandemic surges, European bond yields fall

In Europe, a new wave of epidemic infections has reappeared lockdowns in some regions, alleviating people’s concerns about inflation, resulting in a sharp drop in yields on Friday and a rebound on Monday.

Weekly chart of German 10-year government bonds, source: Investing.com

Weekly chart of German 10-year government bonds, source: Investing.com

The benchmark 10-year German government bond yield rose to minus 0.2945 late Monday, higher than the minus 0.3500 in early trading, but lower than the minus 0.2610 before the sharp drop last Friday.

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The increasing number of cases weakened the European Central Bank’s momentum to turn hawks at its December meeting.

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(Translation: Pan Yiheng)

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