U.S. 10-Year Government Bond Interest Rate Faces New Surge

Despite the schedule of withdrawal from the quantitative easing (QE) unclear even after the meeting of the Federal Reserve (Fed) last week, the bitmap indicates that half of the Federal Reserve Board (FRB) are prone to the introduction of interest-rate hikes in 2022, including three members who advocate that the policy should be implemented twice. Although the financial market has responded to the upcoming timetable announced by the Fed, the authority has to bring hikes forward to curb the escalating inflation when it is continuously worsening. Under the circumstance that the Fed is likely to embark on the increase, the U.S. 10-year government bond interest rate has taken the lead in reaction, thus rebounding rapidly. The increase in interest rate can lead the capital of bond market to bank deposits, inflicting pressure on bond prices but conducive to the growth of bond interest rate.

The U.S. government bond interest rate has dropped from the peak at 1.776% on March 29 to the trough at 1.127% on August 4. Basically, it can be said that the adjustment in this regard is concluded and a new rise is prepared. The upcoming increase has a chance to not only break the resistance level at 1.776% but march towards the other one at 1.2%. Influences exerted accordingly will be focused by investors. In my opinion, the role of the rise this time is similar to that of its previous counterpart.

As for DXY, Nasdaq gives rise to pressure. When it comes to the forex market, JPY and CHF are estimated to be crippled the most with the increase in the bond interest rate and spreads. This is not favourable to EUR, either, due to the growth of DXY and the uncertain prospect of the 2021 German federal election. At the same time, the increase in the U.S. bond interest rate is conducive to DXY, indicative of the risk aversion alleviating. Combing with the heavy selling pressure on precious metals recently, such as gold, platinum, and palladium, this casts a shadow over the price movement of gold.

It is worth mentioning that the ECB Forum on Central Banking is scheduled for this Wednesday by the European Central Bank (ECB). All chairs of central banks in the U.S., Europe, Japan, and the U.K. will be present and give keynote speeches. Traders are believed to concentrate on Powell‘s speech a week after the Fed’s meeting to see his view on the withdrawal from QE and the implementation of interest-rate hikes. It is estimated that he will further elaborate on the potential inception of tapering the bond purchase in November and the possible agreement on the hikes conducted ahead of time next year as expected by half of the FRB. Given the normalcy as usual, Powell will sent more hawkish and clearer signals of withdrawal, making the financial market sufficiently confident in preparedness. Therefore, he may not give dovish messages this time as he did on purpose to bewilder the financial market, according to my view.