Traders in the stock markets have grown concerned about in recent rally of the bond yields. Most of the stock markets have retraced a bit as the investors are closely monitoring the yields moves, like the 10-year US Treasury. They are worrying about inflation risk in the coming years and the jump of yields may pose uncertainties of the easing policies.
The benchmark 10-year Treasury yield jumped to 1.39% above, another new high since Feb 2020. ZFX analyst Jacob Leung said that, again it would be a “warning”. High yields in long terms mean less “easy borrowing” and of course, it will attract the market money back to the bond markets from equities.
On Monday, Asian stock markets were mixed, following the trend set by the US future. European stocks also retreated in early trading session amid cautious sentiment.
In the FX market, the greenback, which is deemed as the safe asset during period of uncertainty, dropped slightly last week. The dollar index is trading at 90.5 level on Monday European session. Recently, the index is ranging around 90-91 area amid the sensitive market sentiment.
ZFX analyst Jacob Leung said that, the market so far does not show clear direction. Some of the investors focus on global economic recovery, lowering the safe-haven demand, however, some may just concern about inflation risk and the potential correction of the equities. Last week, boosting the dollar was the US yields. In general, the outlook of the dollar is going to be mixed.
Analysts believe that the worst of the coronavirus pandemic has passed. This week, investment market will focus on the US$190 billion stimulus bill of the President Biden’s administration in the US House of Representatives, including like distributing up to US$1,400 per person to low-income group. After the vote this week, it is optimistic to expect that the Senate will pass the bill in the middle of March.
On the other hand, “Bloomberg” reported that the White House and Democrats have started to discuss the next plan to support the long-term recovery of the US economy, targeting to propose next month. The core of the plan is to invest in basic infrastructure like roads and bridges, internet connection of whole country, etc. Biden earlier estimated the size of the plan would be about 2 trillion US dollars. But, so many lawmakers and experts think that it could be much more. Some studies estimated the total amount would be at least US$4.5 trillion in ten years.
ZFX analyst Jacob Leung said that, commodity prices have risen sharply these days, including like Bitcoin, amid the expectations of fiscal stimulus. So, it would be a complex rebalancing process between economic recovery, market correction, inflation expectations and the bond yields. If the high inflation arises, it can pose a high risk to the stock market.