The February CPI, announced by the Labor Department on March 10, rose sharply to 7.9% again (after two months of highs above 7%), the highest increase since 1982, reflecting higher gasoline, food and housing prices, which is also in line with the upward trend of inflation and supply shortages in the United States after the russia-Ukraine tensions have become more pronounced.
Inflation is likely to accelerate further after the Russian-Ukrainian conflict continues to trigger global market tensions and push up the price of crude oil and other commodities, and is expected to exceed 8% in the next two months, and the "new debt king" Gunnrak also said on March 10 that the inflation rate in the United States may be as high as 10% this year, which means that high inflation will continue to climb, there is a risk of getting out of control, and putting pressure on the US bond market.
The constant stream of new news suggesting tensions between Russia and Ukraine and the ECB's turn to hawks has kept investors away from the U.S. treasury market. Traders are convinced that once the regional situation eases, US Treasury yields are bound to climb to 3%, because bond yields are inverse to price, and rising yields represent net sell-offs than purchases.
On March 11, forward markets showed that traders were preparing for an inversion of the 2- and 10-year yield curves, which experience showed was often the prelude to a recession and was described by financial markets as one of the "most amazing trend lines."
The data showed that the US benchmark 10-year US Treasury yield rose 2%, for the first time in two weeks. The 10-year Treasury yield climbed 6.3 basis points to 2.011 percent, the fourth straight day of climbing, the longest rally in a month. At one point, the yield on the 30-year Treasury rose 6.5 basis points to 2.40 percent, the highest level since May 2010.
This also means that the U.S. real federal funds rate (EFFR) (savings accounts, certificates of deposit, and treasury bills) is inflation-adjusted (7.9 percent) and becomes negative 5.9 percent, as shown in the chart below, which is the biggest decline since 1954, and even the yields of most high-return corporate bonds are well below the inflation value, which means that U.S. bond investors will have to take more risk, even by posting interest upside down, and facing the risk of increased investment risk.
In this regard, Bill Gross, co-founder of Pacific Investment Management, said that although the safe-haven attraction pushed the 10-year US Treasury yield to 1.666% on March 7, which is also the lowest level this year, as inflation will continue to be high, the current US Treasury has become a "risk investment", and as interest rates in the US interbank offered market rise (for specific trends, please refer to the US CPI and interest rate change trend chart), the investment return on US Treasuries will fall from 10%-20% in recent years to 5%-6%. Even, ratings agency Fitch said on March 11 that the default rate of U.S. high-yield bonds rose slightly to 0.5%, and despite the regional conflict crisis, the forecast of default was not strengthened by safe-haven support.
Deutsche Bank researcher Jim Reid also pointed out in a report published on March 4 that although the sudden escalation of the situation in Russia and Ukraine has partially supported the US treasury, the current US treasury is lacking liquidity, nearly 80% of the real yield of the bond is negative, and more importantly, the continuous rising inflation will push the US real interest rate into a deeper negative abyss, which also means that in theory, including Japan, China, the United Kingdom, Australia, Canada, All overseas U.S. bond holders, such as Germany, may be going to pay interest to the United States for the purpose of holding the U.S. debt, which is equivalent to paying the United States in disguise, which was previously unimaginable.
A corner of the U.S. printing house
As shown in the chart below released by the Federal Reserve on March 9, although the US debt deficit has surged to $30.3 trillion since March 2020, the OVERALL INTEREST EXPENDITURE OF THE US TREASURY HAS REMAINED AT THE LEVEL OBSERVED IN APRIL 2020 (see the chart below). The reason why interest expense has been significantly reduced is because the nominal yield of most bonds is negative.
So, from that perspective alone, because U.S. debt is the foundation of the dollar, but as U.S. debt and inflation rise at the same time, the role of the dollar in the money market will be reset when those smart monetary authorities really need to address U.S. debt and inflation risks.
It is clear that the current U.S. use of the dollar's dominance to sanction Russia's financial system and the world economy's recovery from the coronavirus crisis will significantly weaken the dollar's role. Because the dollar has now become an unreliable currency, and it is constantly diluted by a large number of printing money, in fact, when the dollar breaks away from the gold standard and the dissolution of the Bretton Woods system, the two things in itself show that the dollar has lost the magic glow of the dollar in the past, and this also indicates that gold is expected to return to financial attributes, and at this juncture, an unexpected thing happened.
According to a report published in an update released on March 2, U.S. authorities may soon confiscate gold held by Americans, ban private holdings of physical gold, and allow only the holding of gold and silver coins issued by the U.S. Treasury, because, as the risk of runaway inflation increases, the U.S. may try to digitally monetize gold, which will become more clear in the context of precedent in U.S. history. This explains why Americans have been buying a lot of gold coins in recent times.
The confiscation of people's gold in the United States occurred in 1933, when, for various reasons, then-US President Roosevelt passed a notorious executive order, long story short, Americans were required to hand over their gold, confiscate the gold in the hands of the American people, and in return, they would deposit a deposit in the bank (for details, please refer to the figure below). According to the current market news, it is clear that the American people have this concern. Currently, Americans are snapping up and hoarding gold coins.
Despite a sharp drop in the CONSUMER confidence index in the U.S. in February, the gold coin market unexpectedly remained strong, with a total expected to exceed 140 tonnes in 2022, a new high in more than 10 years, according to data released by London-based Metals Focus. According to data released by the U.S. Mint on March 8, in the first two months of this year, the sales volume of American eagle gold coins was 403,200 ounces, ranking third in the total sales volume in the same period of the calendar year, which is also another strong performance after the continuation of 1.2 million ounces sales in 2021, while the sales of silver coins represented by the US market in 2021 also hit a record high, with silver coin sales of 147.7 million ounces. But it didn't end there, something even more surprising happened.
Americans snapped up some of the details of the data for gold coins
According to a proposal (HB2123) submitted by the U.S. state of Kansas in a March 1 update, the state will formally recognize the status of gold, silver and the same legal tender as the US dollar, and in recent months, several parts of the United States, such as Idaho, Utah, Oklahoma and Arizona, are also accelerating legislation or have made gold the same legal currency as the US dollar, will be used like US dollar cash, and will no longer levy gold profits tax. (End)