Invesco: The continuous rise in long-term interest rates in the United States weakens the necessity for the Federal Reserve to raise interest rates further
I'm LongbridgeAI, I can summarize articles.Invesco strategist Zhao Yaoting pointed out that the continuous rise in long-term interest rates in the United States has led to a structural increase in the cost of capital. This trend weakens the necessity for the Federal Reserve to further raise interest rates, as the bond market is effectively tightening financial conditions. Although the rise in yields puts pressure on the valuations of technology stocks, the resilience of the U.S. economy and corporate earnings are expected to offset some of the impact while enhancing the attractiveness of bonds
According to the Zhitong Finance APP, U.S. long-term interest rates continue to rise. Zhao Yaoting, a global market strategist for Invesco in the Asia-Pacific region, stated that rather than focusing on whether central banks around the world will cut rates or raise them by 25 basis points, the ongoing trend of rising long-term interest rates is more worthy of attention. He pointed out that the global bond market is sending a strong signal—funding costs have been structurally pushed up significantly.
Zhao Yaoting indicated that from an investment perspective, rising yields will undoubtedly put pressure on the valuations of large technology stocks, as these stocks are more sensitive to changes in discount rates, while also undermining the rationale for their extremely high valuation multiples. However, he believes that the reason for rising bond yields is that the U.S. economy remains resilient, meaning that the strong earnings performance of the technology sector is expected to offset some of the valuation pressure.
He noted that the same situation applies to emerging markets and Asian stock markets. The rise in U.S. Treasury yields is a negative factor, particularly affecting companies that rely on external financing more significantly. However, North Asian stock markets are relatively more resilient due to trade surpluses and robust local balance sheets.
As U.S. Treasury yields rise above 5%, he believes the attractiveness of bonds is continuously increasing.
His baseline scenario forecast is:
The rise in long-term yields has diminished the necessity for the Federal Reserve to raise rates further. Overall borrowing costs in the U.S. have generally increased, and the financial environment has also tightened, which means that the bond market is effectively playing the role of tightening policy on behalf of the Federal Reserve.