Original title: us Treasury yields soar in September the global inflation situation changes

Ran Xuedong

On September 22nd, the Fed said at its interest rate meeting that the curtailment of bond purchases was "imminent", and the market is widely expected to begin the process of tapering bond purchases in November. At the same time, the bitmap shows that FOMC members have 50% of their views on whether to raise interest rates in 2022, that is, they expect to raise interest rates ahead of schedule.

After the announcement of the plan, there were no major fluctuations in the Treasury market, but on September 23, the yield on 10-year Treasuries suddenly soared 9.97%, from 1.302% to 1.434%. The yield on 30-year Treasuries rose more than 10.4 basis points to a new high of 1.9125%. It was the biggest increase in long-term Treasury yields in 18 months since the outbreak in March last year. By the 24th, interest rates on government bonds were still rising slightly, while interest rates on long-term government bonds in the world's major economies were rising, and the interest rates on China's 10-year government bonds rose by 0.77%.

At the interest rate meeting in June, 13 of the 18 Fed officials supported raising rates at least once by the end of 2023, compared with seven in March; 11 officials expected to raise rates at least twice by the end of 2023; and seven members expected to start raising rates in 2022.

After more than three months, Fed officials' expectations of raising interest rates have been greatly advanced. Why did they do so? It was in September that there was a major shift in global inflation.

Previously, although the US inflation rate exceeded 5% for many months in a row, the Federal Reserve has always adhered to the position of "temporary inflation". This is due to the low price inflation in the same period last year due to the outbreak in the United States, which led to a higher inflation reading this year. With the end of the low price base in the second half of last year, prices will come down.

This seems to be confirmed by August price data. Although the US consumer price index remained high at 5.3% in August, core prices, excluding food and energy, were significantly lower than expected, at only 4%. This is further proof of the temporary nature of inflation.

It was in September that global supply chain bottlenecks reversed the price situation.

This time it is mainly energy. Since the beginning of this year, electricity prices in Europe and the United States have continued to soar, and electricity prices in major EU economies are more than double those of a year ago. Data show that in July, electricity prices in Italy, Spain, Germany and France reached 10.5, 9.2, 8.1 and 7.8 euro minutes per kilowatt-hour, respectively, up 166%, 167%, 170% and 134% from a year ago. Us electricity prices rose to an all-time high of 13.9 cents per kilowatt-hour in June.

The surge in electricity prices in Europe and the United States is mainly due to extreme high pressure and dry weather, and the sharp decline in wind power and hydropower generation in Europe and the United States in 2021, leading to a surge in alternative demand for thermal power, which leads to a sustained rise in coal prices and a rise in natural gas prices.

After all, the production capacity of natural gas and coal is limited, and the surge in demand cannot be absorbed by supply, leading to soaring natural gas prices in Europe and the United States, which continue to push up thermal power costs and electricity prices.

Electricity is the basis of production and life, affecting the cost of almost all products and services, the rise in costs will inevitably reflect the price of the final product, and the winter in Europe and the United States has come, and the peak of electricity consumption will further worsen the contradiction between supply and demand of energy. many people predict that the rise in energy prices may put out the fire with pay for the already fragile inflation situation.

Some speculate that energy prices could trigger further global inflation in the winter.

What needs more attention is that the global target policy on dual carbon is more stringent, which is very evident in China's recent regulatory policy. To achieve the policy goal in the future, many places will have to adjust electricity consumption. Many factories and enterprises may reduce production or stop production, and rising energy costs further stimulate this action, which will further reduce supply and boost prices.

Most of us regard this round of inflation as a monetary phenomenon. in fact, the mechanism behind this round of inflation has little to do with finance, mainly supply bottlenecks, especially people pay more and more attention to the challenges posed by climate change to human living space in the future. We have to implement carbon peaks and carbon neutralization targets, and strict implementation of policies will boost inflation. The pulse rise in commodities since the beginning of this year is related to clean energy policies. So there is a dilemma between inflation and climate change, which may be the cost we have to pay.

Responsible Editor: Meng Junlian Editor-in-Chief: ran Xuedong