The market's "ghost story": "The Anchor of Asset Pricing for Major Categories" has officially broken through for the first time since 2007, and the world's largest asset management company says "it's not over yet."

"The 'Anchor' of Global Asset Pricing Hits a 16-Year High!

On Monday, the closing price of the US 10-year Treasury yield officially broke through 4.5%, the first time since 2007.

After the expected pause in interest rate hikes, Federal Reserve officials have once again turned hawkish, stating that future rate hikes may not be limited to just one, and that the magnitude of rate cuts in 2024 may be lower than previously expected. The market is reassessing the risks of future economic growth and inflation, pushing up bond yields.

With renewed hawkish expectations in the market, BlackRock, the world's largest asset management company, also believes that the yield on the 10-year US Treasury bond may rise further.

In a report on Monday, BlackRock stated that financial markets are gradually accepting the view that interest rates may remain high, while the volatile macro environment is bringing uncertainty to "central bank policies and future risks."

The team led by Jean Boivin, Head of BlackRock Investment Institute, wrote:

The market is accepting our view that rates will stay high, now even exceeding our expectations for European rates.

The continuous rise in long-term bond yields indicates that the market is adapting to the risks of increased macro and market volatility in the new environment.

BlackRock stated that their strategy for the next 6 to 12 months is to continue reducing exposure to US and European equities, while also reducing exposure to long-term US bonds:

We believe that (current stock market) earnings expectations do not reflect the macro damage we anticipate.

As yields rise, our short position in long-term US Treasuries has benefited us greatly. We prefer short-term bonds as their yields are comparable to high-quality credit, but without the same credit or rate risk.

Affected by the US Treasury yield, the US dollar index rose above 106 on Monday, reaching its highest level in ten months since the end of November last year, after ten consecutive weeks of gains.

Not only in the US, but also in Europe, long-term government bond yields jumped on Monday. European Central Bank President Lagarde reiterated that borrowing costs will remain high as long as necessary.

The Bank of England announced a pause in interest rate hikes last week, but still left room for future rate hikes, stating that it will "maintain sufficient restraint for a sufficiently long period" to achieve its inflation target. If inflation persists, further tightening of monetary policy will be needed.

On Monday, the yield on 10-year German bonds rose by 6 basis points, hovering around 2.80%, reaching the highest level in twelve years since late 2011. The long-end UK bond yield rose by more than 10 basis points, while the two-year yield briefly hit a new three-month low.