In December, the media began to review the market performance of the past year and interviewed the opinions of various financial experts
However, experts are not God, and errors in estimation are inevitable. However, to evaluate the opinions of experts last year, they can be described as “unsatisfactory.” The most outrageous error can be regarded as a miscalculation of the long-term rise in the long-term debt yield. In October last year, the “New Debt King” Gangluck even threatened that the yield on the 10-year US Treasury bond could rise to 3.6%. In the end, the 10-year bond yield rose above the 2014 high of 3.05% to 3.26% and then turned around and fell to a minimum of 1.43% in September, but the intangible hand did not cause the bond interest rate to fall below the support area of 1.32 to 1.38% [Figure 1 Red Box] after rebounding. Looking forward to the future, can the 10-year bond yield rebound further, or continue the weak low last year?
Buyback bond returns not seen as attractive
The 10-year bond interest rate should reflect inflation expectations, but is long-term interest rate more closely related to annual or core inflation. Comparing the 10-year Treasury yield rate of the United States with local annual inflation and core inflation, the results show that core inflation is more closely related to the 10-year bond yield. Therefore, if investors can grasp the prospects of core inflation, they can calculate the prospects of long-term interest rates.
Since the service industry accounts for more than 70% of the core inflation, if the consumption of the service industry increases, merchants will have the intention to increase prices and drive core inflation to rise
Comparing the actual year-on-year change in US personal service industry expenditure and core annual inflation, the former is about one year ahead of the latter. The results show that the growth of service industry spending has slowed down, indicating that annual core inflation will fall slightly to 2%. The money supply can also be used to estimate core inflation prospects. [Figure 4] Comparing the year-on-year change of US broad money supply M2 and core inflation, the two trends are reversed. The former leads the latter by seven quarters. The results show that core inflation rose slightly and then fell, and there is a chance to fall below 2%. There is limited room for long-term rise.
In summary, although the recent 10-year U.S. bond yields have shown signs of bottoming out, personal spending in the service industry and broad money supply have shown that core inflation has the opportunity to fall back and be slightly below 2%, which will limit the rise in long-term bond yields space. However, there is no risk of a sharp decline in core inflation. If you refer to the regression analysis of [Figure 1], it seems that the 10-year bond interest rate is unlikely to fall through the support area of 1.32% to 1.38%, and it is likely to fall in the low range . For bond investors, last year was undoubtedly a bumper year. However, there is limited room for US long-term interest rates to fall again. At present, the return on buying bonds is not attractive. Retailers are better to spend some patience and treat the bond market as if it were on the market.