The truth about the rapid rise in long-term interest rates in the US is an indication that the market has conceived that high policy interest rates will remain unchanged over a long period of time

In the US bond market on 10/3, 10-year bond yields and 30-year bond yields all skyrocketed (bond prices fell). The 10-year bond yield, which is an indicator of long-term US interest rates, temporarily reached 4.806%, and the 30-year bond yield temporarily reached 4.950%, both of which set a high level for the first time in 16 years since 2007. The reason for the rapid increase in long-term interest rates in the US was an unexpected rapid increase in the number of US JOLTS (Employment Dynamics Survey) jobs for August announced on 10/3. The number of JOLTS jobs in August was 9.61 million, an increase of 690,000 cases compared to the 8.8 million cases predicted by the market, showing a high increase for the first time in about 2 years. The number of job offers in July was revised upward from 8.827 million to 8.92 million. Assuming that the tight US employment situation was shown, it seems that caution against additional interest rate hikes by the Fed led to a rapid increase in long-term interest rates at the November meeting. In response to the August JOLTS announcement, in the FF interest rate futures market, while the probability of leaving interest rates unchanged fell from 72.8% to 67.8% at the November meeting, the probability of a 25 bp interest rate hike rose from 27.2% to 32.4%. 　　　　　

The number of JOLTS job offers in January this year was 10.82 million, while the number of unemployed in January employment statistics was 5.69 million, and the ratio of effective job offers was 1.9 times. The ratio of effective job offers compared to the number of unemployed people (6.4 million people) in August JOLTS was only 1.50 times higher than before the COVID-19 pandemic, but the downward trend is clear when viewed from 1.9 times at the beginning of the year. Also, US employment statistics show that the tight US labor market is easing. Although the number of workers exceeded market expectations (170,000 increase) with an increase of 187,000 compared to the previous month according to the US August employment statistics, it fell far below 271,000, which is the average value for the last 12 months. What is noteworthy is that the figures for June were drastically revised downward, from an increase of 185,000 to an increase of 105,000, and the figures for July from an increase of 187,000 to an increase of 157,000, respectively. In response to downward revisions in the number of workers in June and July, the moving average for the last 3 months remained at 150,000. It was clear that the softening trend in the US labor market could be read from JOLTS and US employment statistics.

Based on the idea that the US economy cannot withstand radical interest rate hikes in response to the Fed's “thorough monetary tightening stance,” the market has always made the opposite view that “there will be early interest rate cuts.” Misunderstandings and misunderstandings between the Fed and the market also surfaced from the summary of the proceedings of the December meeting held in December 22, which was announced at the beginning of this year. Despite the fact that the Fed stated in the summary of the minutes that “there are no FOMC members who predicted interest rate cuts in 2023,” the market anticipated a main scenario where the Fed would slow down the pace of interest rate hikes by the end of this year and would steer to cut interest rates by the end of this year. While three consecutive 0.25% interest rate hikes were decided at this year's May meeting, many market participants accepted that the Fed's interest rate hike cycle had reached its final stage, even as of mid-May. According to the main market scenario, interest rate cuts would begin 4 months later in September, and as early as 2 months later in July. The Fed's bullishness and market weakness, which have been in conflict, came to an end with the September meeting this year. Despite the implementation of repeated additional interest rate hikes, since the US economy has not shown any decline at all, in the economic outlook (SEP) announced by the Fed at the September meeting, the policy interest rate forecasts (median value) for 24 and 25 were revised 0.5 percentage points upward, respectively, and a policy was indicated that the pace of interest rate cuts in 24 years (4 times ⇒ 2 times) would slow down from the previous time. The result of the Fed's policy penetrating the market was a rapid increase in long-term US interest rates.

The rapid rise in long-term US interest rates is likely to cast a shadow on the outlook for the US economy as a result. American companies, like those involved in the market, have repeated short-term refinancing with early interest rate cuts by the Fed in mind. For companies subject to S&P ratings, a total of 7.3 trillion dollars will reach repayment and redemption deadlines in 24-26. Of these, 24% are low-rated companies, and the risk of refinancing is expected to increase. Moody's also anticipates a “pessimistic scenario” where the default rate rises from 10 to 15% in mid-24. Also, while the seriousness of labor shortages continued in half of US companies, US companies were reluctant to cut personnel. It seems inevitable that US companies that are pressured to refinance at high interest rates will relentlessly cut personnel. In the not-too-distant future, there is a possibility that we will look back on the recent rapid increase in long-term interest rates as the beginning of interest rate cuts.