Last week's headlines worldwide were dominated by the robust economic data emerging from the United StatesThese statistics prompted a reassessment of the Federal Reserve's prospects for interest rate cuts within the financial marketsIn fact, investment firms on Wall Street, including Bank of America, began pricing in a scenario where the Fed would refrain from lowering rates throughout the entirety of 2025. This hawkish expectation from the market, coupled with soaring interest on U.Sdebt and the new administration's strategy of "domestic tax cuts coupled with foreign tariffs" aimed at spurring economic growth while embracing protectionism, may force the U.STreasury to increase its debt issuance significantly in a so-called "Era 2.0," marking a period of rampant government spendingThis environment has led to substantial sell-offs in the bond market.

Even groundbreaking advancements in artificial intelligence spearheaded by leaders like Nvidia and AMD were overshadowed in the news cycle, as the tight labor market and indicators of inflation—both of which the Fed, currently undergoing a looser policy transition, would prefer not to see—became the focal points for investors and analysts alike.

On Friday, the ten-year U.S

Treasury yield—a crucial benchmark for global asset pricing—surged to 4.79%, the highest level seen since October 2023. Moreover, yields on the twenty-year and thirty-year Treasury bonds also reached multi-year highsThe upward movement was largely fueled by a robust non-farm payroll report along with various labor market indicators that surpassed expectationsInvestors began to adjust their pricing models to account for a revitalized inflation scenario and speculations on the Fed maintaining current rates into 2025, triggering a wave of bond sell-offsThis activity further cemented arguments supporting the Federal Reserve's decision to pause interest rate cuts.

The recent surge in economic metrics and hawkish rhetoric from Federal Reserve officials have notably shifted the forecast regarding potential rate cutsTreasury bond traders are now anticipating the first cut to occur in September of this year, with some even pricing in the likelihood that the Fed won’t lower rates at all in 2025.

Another core factor escalating the yields on U.S

• Chip Subsidy Race Heats Up Among US, EU, and Japan
• Traders Bet on Peak Yields
• AIGC Fuels AI Adoption in Hong Kong Publishing
• AMD vs NVIDIA: A Race to Accelerate
• Emerging Opportunities for Long-term Investment in China

Treasuries, particularly those with a long duration, is the market’s growing uncertainty over American fiscal policiesThe promised tariff measures and domestic tax cuts are viewed as potential catalysts for re-emerging inflationary pressures which could exacerbate the already high budget deficit of the U.STreasury.

Following the Federal Reserve's shift towards a hawkish stance, the narrative of "higher for longer" began to re-enter discussions, prompting the market to price in an environment where a rate cut might be absent in 2025 and expectations of neutral interest rates risingA pivotal logic underlying this shift is the concern that the "Era 2.0" could lead to an acceleration in inflation, while simultaneously, the rapid issuance of Treasury securities and the exacerbation of federal budget deficits might unfoldFurther complicating the situation, major bondholders like Japan and China, now more resistant to increasing their Treasury holdings under the current trend of de-globalization, might opt to significantly reduce their U.S

debt holdingsSuch actions fuel fears among bond investors that future debt repayments on an escalating yield might become unmanageable.

On Friday, the ten-year Treasury yield, regarded as a baseline for lending and a benchmark for global risk-free rates, surged 10 basis points to 4.79%, nearing its highest level since late October 2023. A survey conducted by BMO Capital Markets revealed that 69% of respondents expect the ten-year U.STreasury yield to test the 5% mark at some point this yearAdditionally, the thirty-year bond yield exceeded the significant threshold of 5.00%, with the two-year yield also rising by approximately 7 basis points.

The S&P 500, the benchmark index for U.Sstocks, experienced a decline of 1.94% over the shortened week due to the holiday, closing at 5827.04 pointsAmong the four trading days, two days showed decreaseThe technology sector within the S&P 500 fell by 3.10%, while the collective performance of the "seven technology giants," including Nvidia, Apple, and Tesla, dipped by 1.7%. Nvidia experienced a notable decline of roughly 5.9% during the week.

The apprehension regarding sovereign fiscal discipline is not an issue limited to the United States

France's benchmark borrowing costs have now surpassed Greece’s, while the UK’s government bond yields have soared to the highest levels since 2008, leading to growing concerns of a potential "Truss moment" emerging in the UK bond market, which could trigger turbulence in global financial markets.

Are U.STreasuries still a safe haven for investors? This question hangs over the markets as investors increasingly demand higher "term premia" to cope with the uncertainties surrounding long-term debt, deficits, and inflationThis specific demand for compensation has been a critical driver for the recent increase in the ten-year Treasury yields and even longer durationsWith rising fears about America's ongoing debt sustainability and prolonged inflation risks, that dreaded "term premium," which had previously been less discussed, is making a comebackThe term 'term premium' refers to the additional yield investors require for holding long-term bonds, compensating for the greater risk associated with potential changes in interest rates and inflation over extended periods.

However, amid the volatile geopolitical landscape and the uncertain terrain of the global financial markets, U.S

Treasuries could still emerge as the safest investment optionThe allure of yields reaching 4.7% to 5% may attract a deluge of "buy-the-dip" investorsNotably, the shorter-duration two-year Treasuries may witness a robust rebound as a result of this trend.

This current situation is unparalleledThe Federal Reserve appears capable of raising benchmark interest rates without undermining the fundamental health of the U.Seconomy—a so-called "soft landing." Concurrently, the Fed is signaling hawkish inclinations as the labor market remains stable while inflation trends upwards, all while gradually reducing rates.

Market reports attribute the recent negative reactions in the stock market to overheated valuationsFollowing years of soaring prices driven by major tech stocks, the expected returns on the S&P 500 have unexpectedly dropped to 4.6% for one year, aligning with the yields of five-year U.S