"US Rate Puzzle: Lower Cuts, Higher Rates Explained"

Brothers, we're witnessing history again. After the United States cut interest rates, the yield on these Treasury bonds has actually been rising all the way. As a result, a magical situation has emerged, that is, the more the United States cuts interest rates, the more it is actually raising interest rates.

What exactly is going on here? What is the essence behind it? And what impact does it have on us in China?

The United States announced the interest rate cut on September 18th. At that time, it cut interest rates by 50 basis points all at once. The U.S. base interest rate also dropped from 5.25% to 5.5% to 4.75% to 5%. However, what we didn't expect was that after the U.S. cut interest rates, the yield on 10-year U.S. Treasury bonds actually rose from 3.65% to the latest 4.22%.

This is strange. The yield on bonds is inversely proportional to the price and directly proportional to the base interest rate. That is to say, the lower the base interest rate, the lower the bond yield, or when more people sell bonds, the bond price falls, and the yield rises. Conversely, when more people buy, the bond price rises, and the yield falls. In addition, the bond price is also negatively correlated with the economic trend. When the economic trend is strong, fewer people buy bonds, so the price falls, and the yield rises.

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After understanding the basic principles of Treasury bonds, let's look at this phenomenon of the United States cutting and raising interest rates at the same time, and you will find it is too abnormal. So why does this abnormal phenomenon occur?

First, the U.S. economic data in September itself showed abnormal phenomena, with all data suddenly soaring. The U.S. economy seemed to suddenly emerge from the recession in August and became overheated. This abnormality has caused market divergence, and many people doubt the authority of the data, so two camps made completely different judgments.

Second, after the Federal Reserve cut interest rates, the U.S. dollar also took an abnormal trend. After the interest rate cut, the U.S. dollar not only did not fall but continued to strengthen, and even brought down the renminbi and yen. Originally, the yen had risen from 163 to 140, and the renminbi had risen from 7.3 to 6.9. But in a turn of events, the yen has now fallen back to 150, and the renminbi has fallen to 7.13. The U.S. dollar index has gone from 100 to 104. The strength of the U.S. dollar has also slowed the speed of capital outflow from the United States, and even attracted global capital to continue to flow into the United States. Because now China and the European Union have both cut interest rates. We cut interest rates again the day before yesterday, and now the 5-year deposit interest rate is only in the tens, compared with U.S. Treasury bonds, this interest rate difference is even greater.

Before the results come out, no one can say where this giant ship of the United States will sail in the future?

Let's look at our stock market again. Why did it stop after the big rise on September 24th and on October 8th? It was mainly affected by external factors. These factors affected the sentiment of the big A, so the market rose to its limit and then began to fluctuate. Before everything becomes clear, the big A will definitely continue to fluctuate.