美股下一场风暴，会是美债掀起的吗？未来一周至关重要

Original author: Xu Chao

Original source: Wall Street CN

The U.S. Treasury market is sending increasingly intense stress signals to other asset classes, with equities bearing the brunt.

Long-term Treasury yields surged sharply last week, with the 30-year yield hitting its highest level since 2007, and the 10-year yield also breaking above the trading range that had held since late 2023.

Meanwhile, the ICE BofA MOVE index, which measures expected volatility in the Treasury market, rose to its highest level since May, and demand for put options betting on falling bond prices surged. Cboe data shows that the one-month put skew linked to the iShares 20+ Year Treasury Bond ETF has soared to its highest level since the 2008 financial crisis.

In the coming week, with the release of details on the U.S. Treasury's financing plan and the July nonfarm payrolls report, volatility in the bond market could intensify further.

Bob Elliott of Unlimited Funds recently wrote in a commentary: "It's hard to see how other asset markets like equities can hold up much longer at current interest rate levels without being dragged lower." Gennadiy Goldberg, head of U.S. rates strategy at TD Securities, also warned that uncertainty surrounding Fed policy guidance, compounded by geopolitical and other noise, has made the market increasingly precarious.

Fed Credibility Questioned, Long-End Yields Break Higher

The core driver behind this rise in Treasury yields is market skepticism over the Fed's policy credibility.

Since Kevin Warsh took the helm at the Federal Reserve, he has taken a hawkish stance on inflation. But with inflation having remained above the Fed's 2% target for five consecutive years, investors are beginning to doubt whether the Fed genuinely has the resolve to resume rate hikes.

Last Wednesday, the Fed's rate-setting committee showed a rare split—three regional Fed presidents voted for a rate hike, diverging from the majority. When Warsh concluded last week's press conference, long-end yields suddenly jumped while short-end yields fell in tandem, sharply compressing the spread between the two. According to Dow Jones Market Data, this marked the largest "Fed day" yield curve compression since 2023.

TD Securities' Goldberg said: "The market is questioning just how committed the Fed truly is to controlling inflation." He also noted that while the base case is no rate hikes in either of the next two years, the probability of a hike has "risen significantly."

Bond Market Volatility Climbs, Hedging Demand Surges

The yield moves quickly rippled into the derivatives market, with hedging demand heating up considerably.

The ICE BofA MOVE index has hit its highest level since May, indicating that traders are actively hedging against the risk of further upside in rates.

At the same time, the ratio of put option volume to call option volume linked to the iShares 20+ Year Treasury Bond ETF (TLT) has risen notably. Cboe analysts noted that the one-month put skew on TLT has surged to its highest level since the 2008 financial crisis.

What is particularly noteworthy is that this move higher in long-end yields has diverged from oil prices—crude has fallen rather than rising in tandem with yields, further weakening the correlation between yields and oil and adding to market uncertainty.

Spillover Effects Emerge, Equities Face Growing Downside Risk

Turmoil in the Treasury market has historically been a precursor to equity market risk, and the current situation is no exception, leaving equity investors on edge.

Bob Elliott noted in his commentary that whenever Treasury yields approach or reach current levels, pressure tends to spill over into other markets, with equities being the first to suffer. The 30-year Treasury yield now stands at 5.239%, and the 10-year yield is at 4.693%, both in historically elevated territory.

Goldberg also acknowledged that geopolitical uncertainty stemming from the situation in Iran, vague Fed policy guidance, and a host of other market noise have combined to create a fragile market environment. "All kinds of uncertainties are intertwined," he said.

Multiple Event Windows Loom, a Key Week of Tests Ahead

The coming week will be a critical window in determining whether this Treasury market pressure spreads further.

Later this week, the U.S. Treasury will release the latest details of its government financing plan, and any surprise elements could trigger a fresh round of bond market volatility. Several key economic data releases are also scheduled this week, culminating in Friday's July nonfarm payrolls report, which will have a significant impact on market expectations for Fed policy direction.

Meanwhile, the U.S. Treasury and the Federal Reserve, in coordination with Japanese authorities, conducted a historic coordinated intervention last week to stabilize the falling yen. Analysts believe that one motivation for U.S. participation in the intervention was to guard against renewed volatility in the Treasury market.

The $30 trillion U.S. Treasury market is the cornerstone of the global financial system—serving as core collateral for short-term institutional liquidity and as the benchmark pricing anchor for trillions of dollars in debt worldwide. Once this "sleeping giant" starts to stir persistently, the tremors will extend far beyond the bond market itself.