On the evening of November 22, Powell was nominated for re-election as Fed chairman, and the market interpreted his re-election as a faster start of interest rate hikes and early end of bond purchases, because Powell's re-election nomination means the continuity of Fed policy, which will lead the dollar interest rate and market toward policy normalization in the next four years, as US inflation is unexpectedly high and signs of labor market recovery are accelerating. BWC Chinese The Financial Research Team believes that the possibility of the Fed announcing at its December meeting that it will accelerate the reduction of bond purchases has increased.
Powell
The market reacted immediately, with short-term Treasury yields soaring, with U.S. 2-year, 5-year and 7-year Treasury yields rising to 2021 highs that night, with U.S. swap market prices indicating that the Fed would raise rates by 25 basis points at its June 2022 meeting and raise rates again in November, followed by very weak demand for 2- and 5-year Treasury tenders.
According to data cited by Reuters on November 23, the U.S. Treasury issued $59 billion in 5-year Treasury bonds with a winning yield of 1.319% and a yield of 1.309%, the highest since January 2020, with a bid multiple of 2.34 times, compared with the previous six-month average of 2.41 times.
Demand for a 5-year Treasury auction is dismal
Treasuries are currently trading at their worst level since March 2020 in the two weeks to November 21, and as for expected volatility, the ICE Bank of America MOV Index, which tracks Treasuries, is currently close to its highest level since April 2020, according to bloomberg's National Securities Liquidity Index.
As global bond traders struggle to force a response to high inflation, the unusual volatility of the U.S. bond market has left them with a lot of losses and a vicious circle, U.S. Treasury prices are more prone to large fluctuations, which in turn prevents investors from entering the U.S. Treasury market, traders predict that the Fed may raise interest rates early to curb inflation, we note that at present, the long end of the 20-year and 30-year U.S. Treasury curve continues to invert, which is the 12th consecutive day of inversion of the curve.
The new forecast is also in line with the occurrence of the invisible QT (quantitative tightening) scenario described by the BWC Chinese Financial Research Team, which will become more clear in the context of the US Treasury Department's debt ceiling problem again in December.
According to Bloomberg's U.S. Treasury Secretary's speech quoted on November 22, the U.S. Treasury's cash deposits will not last long after December 3, will run out of deposits in December, and if Congress does not raise or suspend measures such as the debt ceiling, the Treasury Department may not have sufficient resources to continue to provide operating funds after December 15, which also means that the US debt ceiling dilemma will be staged again (after the 480 billion increase in October).
This has also made the recent U.S. bond issuance market even more underperforming, with recent short-term Treasury tenders showing that investors are beginning to demand higher yields to hold shortest-maturity bonds because they avoid post-December 21 U.S. bond auctions. Because the market is worried that the US Treasury may be delayed in payment.
In this regard, the former bond king Gross said that the US Treasury bear market is coming, and the 10-year US Treasury yield is expected to rise to 3% (currently 1.62%), which may further aggravate the inflation in the United States. Because there is still uncertainty about the US debt ceiling budget at the end of 2021, the US Debt may be delayed in payment, which has led to a large number of smart funds pouring into strategic assets that will perform well in the event of rising inflation and early interest rate hikes causing panic in the market, such as gold, and the latest data is responding to this trend.
According to the latest international capital flows report released by the U.S. Treasury Department on November 17, the official data of U.S. Treasuries will have a two-month delay practice, and in September, foreign U.S. Treasury investors, including private individuals and global central banks, sold a total of $53.5 billion in U.S. Treasuries, of which the global central bank net reduced its holdings of U.S. Treasuries for the fifth consecutive month, with a cumulative amount of $35.6 billion.
The U.S. Treasury Department report also shows that, although, in September, China slightly increased its holdings of $600 million in U.S. Treasuries to $1.05 trillion, breaking the state of a sharp reduction of 21.3 billion yuan in August, but the U.S. Treasury position remained at its lowest level since December 2016, and the data showed that in the seven months from March to September 2021 (except July and September), China had reduced its holdings for a total of 53 billion US dollars (about 338 billion yuan in total), and Japan, the world's largest overseas holder of US debt, also significantly reduced its holdings of 20.2 billion US dollars to 1.3 trillion US dollars in September, which we note is also the largest monthly sell-off in Japan since September 2019.
Data source U.S. Treasury Department and Zero Hedging
However, Japan's US Treasury holdings in October and November remain to be seen due to a two-month delay in the US Treasury released data, but signs have been shown that in recent weeks, as the 10-year US Treasury yield rose from 1.317% at the beginning of September to 1.6% today (us Treasury prices are inversely proportional to yields), foreign investors, including global central banks, may see more sell-off.
Foreign central banks have been selling U.S. Treasuries for five consecutive months
It is in these contexts that some clever international money has begun to move out of the U.S. asset market, as shown in the latest figures from the World Gold Council and the IMF, where the replacement trend from U.S. bonds to gold has continued in recent months for simple reasons.
Because the United States has long maintained interest rates at zero levels, and inflation has remained above 6%, resulting in negative yields for 29 consecutive weeks after deducting monthly inflation, according to a report by Jim Reed, a senior analyst at Deutsche Bank, at present, 85% of the real yields of high-yield bonds in the US bond market are negative, lower than the current inflation rate.
It is worth noting that the US quartz website cited the latest analysis of some Wall Street institutions and economic experts a week ago that if the Fed still maintains a loose monetary policy, US inflation will rise to double digits in the next step, which means that US debt hedges the cost of issuing debt in a high inflation environment and reduces the DEBT burden of the United States, which is equivalent to a gradual implicit default of US debt. And it is at this critical moment that there is another thing that makes the market feel unexpected.
According to an updated tracking report released on November 20 by Crispin Odey, the world's top hedge fund manager, because the US authorities are making low inflation a top priority at present, the US Treasury May soon confiscate privately held physical gold, because several heavyweights, including former US Treasury Secretary Mnuchin, have warned that the Fed and the Treasury will lose control of inflation, which we note is unprecedented in US history.
As the document below shows, in 1933, for various reasons, then-U.S. President Franklin D. Roosevelt confiscated American gold by infamous executive order, and they were required to hand over the gold in return for a bank deposit of $20.67 per ounce in exchange. Although, Crispin Odey also admits that the United States will only do this when it feels the need to establish a stable settlement unit for the global business environment, which explains why more and more Americans are now snapping up gold and silver coins in response to uncertainty risks such as runaway inflation and the confiscation of privately held gold by the United States.
According to the latest data from London-based consultancy Metals Focus on November 20, although U.S. consumer confidence has fallen sharply since April, the U.S. gold jewelry market remains strong in 2021, with consumption expected to exceed 140 tons, an increase of more than 10% over 2019 and close to 2000 levels, which also means that the U.S. gold jewelry market hit a new 10-year high.
According to the US financial website Silverdoctor quoted the latest data from the U.S. Mint on November 15, the sales of gold coin Gold Eagle in the United States took only six months in 2021, and the size of the Gold Eagle snapped up by Americans was equivalent to 2.2 times the total sales volume in 2019, and the January to October 2021 increased by a staggering 79.2% compared with the same period last year, and the data showed that sales in the same period of 2020 were 679,000 ounces.
Americans snapped up some details of the gold coins
Another data also shows that Americans' love of gold has reached a multi-year high, according to the U.S. precious metals research industry network Silverdoctor on November 18, updated the U.S. Mint data report, gold gold Gold Eagle sales in the first 10 months of this year increased by a staggering 79.7%, the same period last year sales of 679,000 ounces, which means that in 2021 in only six months, the size of Americans snapped up gold coins is equivalent to 2.2 times the total in 2019.
At the same time, according to the US financial website ZeroHedge on November 19, citing an updated proposal (HB2123) proposed by the US state of Kansas, the state passed legislation to make gold legal tender, with the same currency function as the US dollar, so that gold becomes a currency that goes hand in hand with the US dollar.
ALEX MOONEY
In response, State Congressman Alex Mooney, a defender of the U.S. gold standard, further said, "Most of our economic and financial problems are not simply the result of globalization and unemployment, but the Fed's efforts to destroy the credit of our money and dollar assets by printing money faster and more money, for which Fed Chairman Powell should be held accountable." (End)