In his speech at Jackson Hall, Federal Reserve Chairman Kevin Warsh pushed the market to re-pricing interest rates. After the investors raised interest-rate bets in September, the total US Treasury debt return went up, and the 30-year rate of return continued to stand above 5 per cent, close to high since 2007.

Maintaining high long-term interest rates means that the costs of mortgages, corporate debt and other long-term financing in the United States remain under pressure. Market concerns are no longer just policy interest rates per se, but include the adhesiveness of inflation, the pressure to finance fiscal deficits, and the impact of increased supply of long-term national debt.

The interest rate increase is expected to heat up in September.

Warsh argues that inflation is still above the Fed’s target of 2%, and that there is a need at the decision-making level to see potential inflation fall “clearly and fast enough” to justify a relaxation of vigilance. He added that the current overall financial environment was not tight.

After the speech, the market's implicit probability of interest rate hikes in September rose to 55.7 per cent, up from 35.4 per cent the previous day. This change is first reflected in short-term United States debt, as annual rates of return are the most sensitive to monetary policy expectations.

  • 2 Annual US debt return up 12.79 basis points to 4.36 per cent
  • 10 Annual US debt return up 5.6 basis points to 4.728 per cent
  • 30 Annual United States debt return up 2.19 basis points to 5.2129 per cent

30 years is still 5% above

In addition to higher interest-rate expectations, long-term rates of return are supported by a wider range of factors. Investors demand higher returns to compensate for inflation risk, long-term debt risk and the continued expansion of the United States Treasury's financing needs.

Citi strategist Dirk Willer was quoted as saying that the increase in the term premium was pushing up long-term financing costs, while the size of the government deficit remained an important source of pressure on long-term interest rates. Prior to that, the annual rate of return on United States debt rose to 5.32 per cent, the highest level since 2007, and then fell to 5.20 per cent.

The United States Treasury Department is also trying to improve long-term mobility. From 9 September, the Ministry of Finance will increase the liquidity-support buy-back cap of the 10- to 20- to 20-30-year national debt from $2 billion to at least $4 billion per buy-back.

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The rate of return is quickly transferred to other assets. On Friday, the main United States equity index fell back, interest rates were even more sensitive, and the United States dollar index was rising.

  • Standard 500 index drop 0.25%
  • NASDAQ combined index dropped by 0.52 per cent
  • Russell, 2000 is down 1.4%.

Encryption is as weak as precious metals. Bitcoin fell by 3.34 per cent, reporting US$ 77,414; spot gold fell by 3.19 per cent and silver by 4.3 per cent. The United States dollar index rose by 0.61 per cent.

Next, the market will continue to observe whether employment and inflation data in the United States further support the September hike. If the return on 30-year-old United States debt again breaks by 5.30 per cent, the pressure on long-term financing costs may rise again; if it continues to fall below 5 per cent, it means that the upward pressure has begun to ease.