Odaily Planet Daily report: In July, the U.S. manufacturing PMI rose to 55.6, reaching its highest level since 2022, as both production and employment showed signs of recovery. However, strong demand and geopolitical-driven inflation concerns have unsettled the bond market, with Bank of America warning that the Federal Reserve is facing a credibility test. The robust performance of manufacturing, coupled with inflationary threats from geopolitical tensions, has plunged the U.S. Treasury market into severe volatility. Long-term U.S. Treasuries have recently faced heavy selling pressure, pushing yields to near 20-year highs.
Mark Cabana, Head of U.S. Interest Rate Strategy at Bank of America, commented that the sharp volatility in the bond market constitutes a "textbook inflation credibility shock."
Kabana noted that the core cause of market volatility is not the data itself, but the Fed’s lack of clear policy communication. He specifically highlighted Federal Reserve Governor Kevin Warsh’s performance at a recent press conference, stating that Warsh failed to clearly articulate how the Fed intends to achieve its 2% inflation target.
“Setting a firm inflation target is one thing, but if you don’t tell the market the specific path, investors won’t buy in,” Cabana frankly told Bloomberg Television. “The bond market cannot be fooled—it sees through all appearances.” (Jinshi)