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US bond yields have peaked over the past nearly two decades, as ten-year securities are trading at a yield of 4.8% per annum (for comparison, in October 2020, the yield on such securities did not exceed 0.7% per annum).
Banker and investor Denis Gorbunenko is convinced that such dynamics are not an accidental phenomenon, but the result of a series of global economic events and strategies of central banks.
“The increase in bond yields correlates with the sell-off of these assets. If investors sell bonds en masse, their prices fall and yields rise. The global market is witnessing a prolonged sell-off of bonds, which affects the profitability of American government securities,” the expert noted on his Facebook page.
Mr. Gorbunenko has worked in the banking sector since 1992, and since 2009 he has focused on his investment projects, in particular in the field of residential real estate and premium property management. According to him, investors feel that the US Federal Reserve System is not going to ease its policy soon. Such a position of the Fed, the financier is convinced, creates an expectation of an increase in interest rates, which, in turn, increases bond yields.
In September, the Fed kept the key rate at the level of 5.25-5.5%, which is the highest rate in the last 22 years. In a statement, the Federal Reserve’s Open Market Operations Committee (FOMC) said the United States banking system is ” resilient and robust” and the Committee will continue to monitor inflation risks.
However, Mr. Gorbunenko notes, that general inflationary trends are also influenced by the prices of energy resources, especially oil.
” As oil prices rise, spending increases in many sectors of the economy, which can lead to an overall increase in prices. Such dynamics fuel fears that it will be difficult for central banks to contain inflation,” the financier adds. He also notes that since the beginning of October, the December futures for Brent crude oil have risen in price by 3.5% to $89.12 per barrel. According to the expert, the growing cost of oil was affected by the conflict between Israel and the Hamas group.
At the same time, Denis Gorbunenko emphasizes that the high yield of bonds makes them more interesting for investors looking for safe places for their investments. As a result, money is pulled away from riskier assets such as cryptocurrency assets, as evidenced by the downward dynamics of their value over the past year.
“At the same time, if bond yields rise, it also increases the cost of lending for countries and companies. High-interest rates, in turn, make it difficult to finance public debt and corporate debt obligations,” notes the banker who won the “Financier of the Year-2007” award.
In the future, these changes in the bond market, as predicted by Denis Gorbunenko, will be reflected in a decrease in investments in risky assets (therefore, we should not expect a quick recovery of the growing dynamics in this direction), a complication of lending conditions and, as a result, a slowdown in economic growth.
