Our reporter Lu Hong
On January 5, the minutes of the Fed meeting said that “in view of the rising inflationary pressure and the strengthening of the labor market, participants believe that the increase in policy easing brought about by the current pace of net asset purchase is no longer necessary”. The hawkish remarks of the Federal Reserve dropped a bomb on global capital, and it goes without saying that the prices of stock market, gold and bitcoin (BTC) fell. The most important thing is that the yields of national bonds rise immediately, which has a far-reaching impact on the global economic outlook.
On January 6, the yield of 10-year US Treasury bonds rose again, up 1.68% and rushed to 1.7%, hovering at the highest level since late November last year. The yield of UK 10-year benchmark treasury bond rose 0.3 basis points to 1.087%, ending two consecutive trading days of decline; Over the same period, the yield of German government bonds rose 3.7 basis points to -0.084%, erasing the decline on January 4.
At the beginning of 2022, the US bond yield has been rising continuously. As the market is increasingly worried that rising inflation and the tide of us labor resignation will force wages to rise, the Federal Reserve will adopt a more aggressive monetary tightening policy. In this increase, the performance of long-term US bond yields is particularly prominent, led by the 10-year and 30-year benchmark yields, and the yield rise curve tends to be steep.
The rise and fall of U.S. long-term bond yields determine the cost of capital use in the international market. With the rise in the yield of US bonds and the increase in the cost of capital use, investors and operators will be cautious or even shrink their investment tendency in the future under the expectation of increasing the cost of use in the future. This is also the reason why the US stock market plunged after hearing the statements of the hawks of the Federal Reserve.
Last year, Brazil, Russia, South Africa and other emerging markets raised interest rates. If nothing unexpected happens this year, developed countries will also start the process of raising interest rates. In particular, the recent hawkish position of the Federal Reserve has strengthened people’s expectation that it will raise interest rates in March, which will be a major event that the global market needs to pay great attention to this year. According to the remarks of the Federal Reserve on January 5, it is equivalent to the world’s most important central bank telling you that the United States is going to tighten its currency, and many dollars will flow out of other regions and into the U.S. market in order to buy the U.S. bond yield determined after the increase of interest rate in an uncertain economic environment. It is understood that the plan of many investors this year is to carry out the investment strategy of preserving value, and the purchase of US bonds is the most traditional way to preserve value.
The most direct consequence of the rise in US bond yields is that it will attract many US dollars in the international market to flow out of emerging development areas and into the US or US bond market. This will be a severe test for the economic situation of those areas where the US dollar flows out this year.
At the beginning of the new year, this serious consideration has been reduced to Kazakhstan in Central Asia. Due to large-scale protests, Kazakh President Tokayev declared a state of emergency in the country’s capital, Nur Sudan, on January 5.
The apparent fuse of the riots in Kazakhstan is the dissatisfaction of the people caused by the rise in the price of liquefied natural gas in the country. In fact, the high inflation rate and currency devaluation in the past two years, especially the sharp rise in food prices, have made the country’s Lbx Pharmacy Chain Joint Stock Company(603883) livelihood difficult. In 2020, the price increase in Kazakhstan has reached 10.8% to 11.3%. In 2021, the price of goods continues to rise under the premise of high inflation last year. Due to the sharp rise of global oil and gas prices and the appreciation of the exchange rates of the US dollar, RMB and ruble, the import cost of Kazakhstan has increased, and the inflation rate has risen steadily, almost exceeding the warning line of 8.5%. The bigger problem is that Kazakhstan suffered a grain supply crisis due to the drought last summer. It relies on a large number of imported Russian grain to supplement the grain demand of the Chinese market. This requires a large amount of foreign exchange, but by the end of November 2021, the foreign exchange assets of Kazakhstan state fund were US $54.9 billion, a month on month decrease of US $140 million. In order to prevent excessive fluctuations in the exchange rate of Kazakhstan’s currency tenge, under the background of short supply of foreign exchange, the Central Bank of Kazakhstan intervened with foreign exchange reserves in order to stabilize the situation of the foreign exchange market. On December 2, the trading volume of tenge against the US dollar on the Kazakhstan stock exchange reached US $292 million, a new high since April 2020. Affected by the continuous rise in foreign exchange demand, the trading volume continued to expand, and the exchange rate of tenge against the US dollar fell to 436:1.
Considering that the Fed’s monetary policy will further tighten liquidity by reducing the scale of debt purchase and raising interest rates this year, it will have a sustained adverse impact on countries with high inflation, currency devaluation and high external debt. Turkey was brought down last year. At the beginning of this year, there were riots in Kazakhstan. Which country meets the above three conditions is likely to be the next volatile region.
(source: International Business Daily)
