Summary of Key Points
Recently, the yield on 30-year U.S. Treasury bonds reached a 19-year high. U.S. Treasury Secretary Janet Yellen attempted to stabilize the market by increasing purchases of long-term bonds, but this only temporarily suppressed the yield, which later rebounded to 5.24%. Yields on long-term bonds in many countries have also risen simultaneously. Amid market anxiety, gold (up 14% month-on-month) and Bitcoin (up more than 25%) have seen significant gains, while the U.S. dollar has weakened. The underlying reasons include the high U.S. fiscal deficit (estimated at $1.9 trillion for the year) and concerns about creditworthiness, as well as the lack of transparency in the communication from the new Federal Reserve Chairman Jerome Powell, which has increased uncertainty. There is a structural increase in global capital costs, and Asian bonds have shown resilience. Institutions recommend investing in high-yielding currencies, gold, and commodities.
1. Why Didn't the Effort to Stabilize U.S. Bond Yields Work?
The core issue behind the surge in U.S. bond yields is that the fundamental problems have not been resolved:
- Large Fiscal Gap: The U.S. deficit this year is already接近 $1.8 trillion, with an estimated annual deficit of $1.9 trillion, and interest payments over the next decade expected to reach $16.2 trillion. Investors are worried that the U.S. may not be able to repay its debts, so they demand higher interest rates as a form of risk compensation when buying long-term bonds.
- Excessive Supply: The U.S. is issuing a large amount of debt, and tech companies are also issuing bonds to fund AI initiatives, overwhelming the market's capacity to absorb these bonds, leading to rising yields.
Yellen's bond purchases only temporarily increased demand for long-term bonds, which is like “handing a glass of water to someone who is thirsty,” but it did not address the underlying issues of the fiscal deficit and excess supply, causing yields to rise again soon after.
2. Why Have Gold and Bitcoin Appreciated, and the Dollar Weakened?
Typically, when U.S. bond yields rise, the dollar strengthens because it offers higher returns. However, this time the dollar weakened, indicating that investors are concerned not about the Federal Reserve raising interest rates, but about the creditworthiness of the U.S. government:
- Investors believe that the U.S. debt is too high, making dollar assets less secure, so they are shifting their funds to gold (a traditional safe-haven) and Bitcoin (an alternative safe-haven).
- Nomura analysts describe this as a “pressure release valve”: The anxiety surrounding U.S. bonds is being directed towards gold and Bitcoin. It’s similar to worrying about a bank failing and converting savings into gold as a form of protection.
3. Why Is the New Fed Chairman Jerome Powell’s Debut So Important?
Powell’s communication style since taking office has been vague, as he has not provided any forward guidance on interest rate trends. His previous remarks caused a sharp drop in U.S. bond prices. His debut at the Jackson Hole Symposium on August 28 will be crucial:
- If Powell still does not clarify the direction of inflation and interest rates, investors will become even more anxious and continue to sell U.S. bonds, potentially driving yields even higher.
- The market is also discussing whether the Fed will use “quantitative easing” measures, such as selling short-term bonds and buying long-term bonds, to lower long-term bond yields. However, these are only temporary solutions and do not address the fundamental issues.
4. The Global Market Chain Reaction: Who Is Most Affected, and Who Is More Stable?
The increase in global capital costs (the cost of borrowing) is affecting various assets:
- Tech Stocks: AI companies, with their high valuations and need for long-term financing, are vulnerable to rising interest rates, but the resilience of the U.S. economy could offset some of this impact.
- Emerging Markets: Countries in Northeast Asia (such as China and South Korea) have strong resistance to risks due to large trade surpluses and substantial foreign exchange reserves. However, countries that rely on external financing are under more pressure.
- Asian Bonds: Asian bonds have performed better than those in Europe and the U.S. because Asia has shifted from being a capital-exporting region to a local safe-haven, with large trade surpluses and sufficient energy reserves, as well as AI-driven economic growth.
5. What Should Ordinary Investors Do?
Institutions recommend a strategy that focuses on both risk mitigation and profit generation:
- High-Yielding Currencies: The British pound and Norwegian krone (in Europe), as well as the Australian and New Zealand dollars (in the Asia-Pacific region), offer higher interest rates and potential interest arbitrage opportunities. The Chinese yuan may also appreciate.
- Gold: Central banks are continuing to buy gold, and the Fed may not raise interest rates, which could lead to further gains in gold prices.
- Commodities: Energy (due to regional instability in the Middle East), agricultural products (potentially affected by El Niño), and industrial metals (needed for AI and electrification) are all benefiting from the weakening dollar and supply risks.
In summary, investors should avoid high-leveraged and long-duration assets (such as certain tech stocks) and allocate more to safe-haven and high-yielding assets. This news essentially indicates the initial signs of a U.S. fiscal credit crisis, and the market has voted with its feet by choosing safer assets. Ordinary investors should focus on the long-term trend of rising global capital costs and adjust their asset allocation to be more conservative.