The yield on the US 10-year Treasury bill briefly exceeded 1.6% last Thursday, hitting the highest level in more than a year, fueled by expectations of higher economic growth and inflation. The yield on the benchmark 10-year Treasury bond fell to 1.40% after peaking at 1.61%, a one-year high at the beginning of the week.
The main problem in 10 years is whether we have seen the peak yet. In other words, the maintenance of the upward trend will depend somewhat on the developments that will take place in the next few days. Above all, the main factor that feeds inflation expectations is the expected demand. Therefore, the fate of $ 1400 paychecks is of great importance. Although the Biden package passed the House of Representatives stage on Friday, the Senate stage still seems to be on the edge. We saw the impact of paychecks in terms of triggering individual demand in PCE data on Friday. Personal income increased by 10% in January with the effect of the interim financial package. This needs to become permanent, at least until the labor market improves. Of course, we will look at how much of this money aid will go to spending, how much to save, and how much to the financial markets.
The Fed meeting will take place on March 16-17. Powell most recently stated that they were not in the tapering review phase, but did not give a direct reference to the rise in bond yields. Logically, the Fed should still remain at its point of expansion. So it's possible that they react to this steepening trend in the yield curve with a monetary policy tweak. So on the long-term side, buying more and bringing the yield curve to the horizontal plane. Otherwise, the Fed will have to adapt to the market, which is not something we are used to. It also destroys the effectiveness of monetary policy. Powell's speech on the US economy on March 4 will be the most important statements we will watch before the Fed.
We are not going into too much detail at this stage, as we will already mention the February employment report to be announced on Friday. Powell pointed out that the actual unemployment rate could be around 10%, pointing to long-term unemployment and hidden unemployment. There is still a way to go.
At this stage, emerging countries' currencies seem to have relaxed a bit and entered the week positively. TRY was the worst selling currency in this equation. The global impact faded a little, and this situation spread positively on emerging country currencies. Re-appreciating with the currencies of other emerging countries, TRY leads the gains in this group. Our reaction range will be determined by the policy response to squeezing domestic inflation and global interest rates.
