A financial professional, Chuck (Atsushi) Kawakami (pictured) reported recently regarding the interest rates in the United States. This time, MIRUPLUS introduce his analysis as follows;

 

Long-term interest rates in the United States are rising. The short term has hardly moved. Two years from now, when corona pandemic's impact is expected to be smaller, yields on two-year Treasury bills have not moved at a low level. 10-year government bonds are leading the way in rising interest rates, but the sense of incongruity cannot be wiped away.

 

The rise in inflation expectations is the reason for the rise in 10-year government bond yields. Indeed, the breakeven inflation rate of the St. Louis Fed. 2.2% in 10-year government bond yields. However, this is a market-based measure of expected inflation as described in the commentary, and to be clear, it is inversely allocating the expected inflation rate from the yield embodied in the market. The components are the 10-year bond yield and the 10-year inflation-linked bond yield. This is calculated every day.

 

On the other hand, there is an expected inflation rate issued by the Federal Reserve Bank of Cleveland. This is an estimate by model, but consists of survey data on yields, inflation data, inflation swaps and inflation expectations for the entire period up to 30 years. It is calculated only once a month, but it was 1.37% at the end of January .

 

Actual consumer price trends were 1.36% year-on-year in the December index and 1.62% in the index excluding food and energy. Historically, 2.95% in July 2018 was the highest in all indexes, even close to full employment in 2018-2019, and then around 2%.

 

The corona pandemic will change specific work and formation from employment not only in the United States but also around the world. Even in the U.S., it will not be easy to get close to full employment at the level in 2019. In addition, if digital technological progress continues to accelerate, prices should basically continue to be restrained as productivity of all factors increases. Even if the market is more than 2% factored in right now, it's actually not that easy given these factors.

 

I expect the current 10-year interest rate rise to be pushed back sooner or later. What the market forgets is that, although supply and demand remains tight in part, the overall economy continues to be oversupplied.

 

Chuck (Atsushi) Kawakami

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