In hindsight, the 10-year U.S. Treasury rate of 4.34% in October 2022 and 4.1% in March 2023 may not be the “correct” frame of reference. Because economic fundamentals and the end point of the Fed's interest rate hikes clearly exceeded consensus expectations at the time, we cannot go back to history to correct mistakes.

A review of the shape of the 10-year U.S. bond yields in the 12 times the Federal Reserve raised interest rates since 1958 shows that the high point of the 10-year U.S. bond interest rates this time appeared "too early."

A review of the U.S. economic cycle and monetary policy history over the past 60 years will reveal that during the period when the Federal Reserve suspended interest rate hikes, U.S. bond interest rates generally showed three forms: (1) downward trend; (2) upward fluctuation; (3) high and volatile (W type).

Among them, trend decline dominates, followed by upward fluctuations, and finally high shocks. Combining the economic fundamentals and the Federal Reserve's policy stance, we can see that inflation is the core conflict and financial risk events are important turning point signals.

Overseas events & data: U.S. consumption growth in July exceeded expectations, Japan's core inflation rebounded U.S. consumption growth in July exceeded expectations. U.S. retail sales in July recorded a month-on-month growth rate of 0.7%, which was expected to be 0.4%. The year-on-year growth rate was 3.2%, compared with the previous value of 1.6%. The growth rates of both goods and food services improved, with food services rising to 12% year-on-year, up from 9.5% in the previous year, and retail sales of goods rising to 2% year-on-year, down from 0.5% in the previous year. The growth rate of automobile consumption among durable goods has improved, with a growth rate of 7.4% in July, compared with 5.8% in the previous month. The month-on-month growth rate of non-durable goods has generally improved.

Japan's headline inflation was unchanged from the previous reading in July, but super core inflation rebounded. Japan's CPI rose 3.3% year-on-year in July, unchanged from the previous reading. Core CPI increased by 3.1% year-on-year, down from the previous value of 3.3%, in line with expectations. "Super core CPI," which excludes food and energy prices, rose 4.3% year-over-year, up from 4.2% in the previous month. Service CPI growth rate increased from 1.6% to 2%.

U.S. housing starts and building permits rebounded. The U.S. NAHB housing market index fell back to 50 in August from a previous reading of 56, marking its first decline this year. The number of new housing starts in the United States was 1.45 million units, compared with 1.398 million units in the previous period, rising to 4% month-on-month, and -12% in the previous month, and rising to 6% year-on-year, and -10% in the previous month. In the United States, 1.442 million building permits were approved in July, compared with the previous value of 1.441 million units. As of August 17, U.S. 30-year mortgage rates rose to 7.1%, an increase of 40BP from 6.7% at the end of June.