Castle Securities: Fed Chair Walsh's Commitment to Lowering Inflation Boosts Credibility, Supports Long-Term Treasury Yields

According to Jin10, Castle Securities pointed out that Fed Chair Walsh's commitment to lowering inflation has significantly enhanced the Fed's credibility. This enhanced credibility helps support long-term U.S. Treasury yields while compressing term premiums. The term premium is the additional compensation investors demand for holding longer-dated bonds. When central bank credibility is high, the market is more confident in its ability to control inflation, leading to more stable long-term inflation expectations, which helps reduce the term premium. Following last week's Federal Reserve meeting, data from the $31 trillion U.S. Treasury market showed that long-term yields exhibited greater stability compared to the more policy-sensitive two-year yields. Nohshad Shah, the firm's head of fixed income sales, said, 'A highly credible Fed should be beneficial for long-end yield performance.' Castle Securities' view underscores the central role of central bank credibility in bond market pricing, especially in the current environment of lingering inflation pressures. As the world's largest bond market, movements in U.S. Treasury yields have a significant impact on global asset pricing.