{"text":[[{"start":12.53,"text":"Like shoppers, investors are often prone to the so-called left-digit bias — the tendency to place more emphasis on the leftmost digit of a price. "},{"start":20.671999999999997,"text":"Indeed, when the 10-year US Treasury bond yield — a benchmark used to price assets in America and across the world — surged from the high fours to 5.02 per cent on Monday, it caused a stir in financial markets. "},{"start":33.189,"text":"Yields have now swung back, but still hover at post-global financial crisis highs. "}],[{"start":38.53,"text":"Breaching the 5 per cent barrier for the first time since 2007 is a marker of how tight financial conditions are becoming in the US Federal Reserve’s rate-raising cycle, and the growing squeeze ahead for the US economy. "},{"start":50.097,"text":"The 10-year Treasury yield has risen more than 3 percentage points in the past two years. "},{"start":54.889,"text":"The high volatility and speed of the sell-off in recent weeks, at a time when liquidity in Treasury markets “remained challenged”, according to a Fed report last week, is concerning too. "}],[{"start":64.94,"text":"There are several drivers behind the recent jump in 10-year yields, which are up from 4.6 per cent in mid-October. "},{"start":71.707,"text":"First, investors have cottoned on to the Fed’s “higher for longer” narrative on rates, particularly as a slew of strong economic data has backed up its rhetoric. "},{"start":79.824,"text":"Second, the “term premium”, or the additional yield investors need to compensate for holding long-term bonds, has probably risen, according to analysts. "}],[{"start":88.88,"text":"The US government’s widening deficit has driven higher bond issuance, while rising spending needs and political turmoil are raising expectations for future Treasury supply too. "},{"start":98.447,"text":"But demand has fallen, particularly with the Fed shrinking its Treasury holdings via quantitative tightening. "},{"start":104.277,"text":"Belief that the underlying interest rate could be higher in the long term is also growing. "},{"start":108.794,"text":"This is pushing up yields, but uncertainty also remains high. "},{"start":112.58699999999999,"text":"While 10-year yields have been on an upward march since the Fed began raising rates, intraday swings are common. "}],[{"start":119.36,"text":"Elevated yields could exacerbate fiscal concerns, with spending on interest payments rising. "},{"start":124.702,"text":"Mortgages and corporate bonds, which are linked to long-term Treasury yields, will become costlier. "},{"start":130.132,"text":"Stock valuations could be strained. "},{"start":132.449,"text":"Together, this raises the chance of a deeper and longer economic slowdown, which could pull down yields. "},{"start":138.21699999999998,"text":"Indeed, market skittishness poses its own risks, particularly when Treasury liquidity remains below historic norms. "},{"start":145.13400000000001,"text":"Investors looking to lock in high yields may be reticent to buy if they think prices could fall further. "},{"start":150.239,"text":"The risk of sharp yield movements could also threaten institutions holding large bond losses, and stoke distressed Treasury sales. "}],[{"start":157.98,"text":"The volatility is an inevitable consequence of investors trying to price Treasuries amid heightened uncertainty and following years of the Fed’s bond-buying. "},{"start":165.959,"text":"The lack of clarity on the economic outlook means a convincing narrative to anchor yields is also far off. "},{"start":171.552,"text":"Policymakers ought to be alive to the risks of something snapping in financial markets — and can also help to bring stability. "}],[{"start":178.76999999999998,"text":"For the Fed, higher Treasury yields will obviate the need for further rate rises at next week’s rate-setting meeting. "},{"start":184.962,"text":"Outlining a clear vision for the economy will, however, be difficult. "},{"start":189.19199999999998,"text":"Jay Powell, the Fed chair, should at least be measured in his communications to avoid adding to the jitters. "},{"start":195.022,"text":"Monitoring Treasury market liquidity, and efforts to enhance it, will remain important as well. "}],[{"start":200.90999999999997,"text":"Above all, the US needs to display fiscal prudence. "},{"start":204.62699999999998,"text":"The deficit as a share of gross domestic product is projected to balloon. "},{"start":208.64399999999998,"text":"Higher debt issuance in a market short of buyers will keep upward pressure on yields. "},{"start":212.91199999999998,"text":"Paralysis in the US Congress does not help. "},{"start":215.62899999999996,"text":"High rates, allied with lax fiscal policy and political chaos, are a recipe for a vicious cycle of rising government yields — as Britain can attest from its turmoil a year ago. "},{"start":225.42199999999997,"text":"But if the US has its own Liz Truss moment, the damage will not be contained to its shores. "}],[{"start":230.31999999999996,"text":""}]],"url":"https://creatives.ftacademy.cn/album/127332-1698281967.mp3"}