Group 1: Macro Overview - U.S. Treasury yields are a core variable in the global asset pricing system, influencing asset valuations and capital flows[2] - Understanding U.S. Treasury yields is essential for grasping global asset price linkages and cyclical evolution[2] Group 2: Four-Factor Framework - The report constructs a "four-factor" framework to decode U.S. Treasury yields, comprising expected real interest rates, inflation expectations, inflation risk premium, and actual risk premium[3][5] - The expected 10-year U.S. Treasury yield is projected to fluctuate around 4.1% in 2026, with a likely "steepening" curve characterized by a slow decline in short-term rates and high volatility in long-term rates[3][11] Group 3: Key Insights on Yield Dynamics - The yield curve is expected to reflect a "twist steepening" if the new Fed Chair, Warsh, becomes more politicized, potentially leading to faster-than-expected rate cuts[3][11] - Conversely, if Warsh emphasizes Fed independence, rate cuts may be slower and shallower, impacting the yield curve differently[3][11] Group 4: Risk Factors - Key risks include fiscal and supply shocks that could elevate the term premium, as well as political and policy uncertainties that may disrupt market pricing[12] - The report emphasizes that managing curve shape and exposure to high term premiums is more critical than betting on specific interest rate levels in 2026[12]

Market Performance - The three major U.S. indices closed higher, with the Dow Jones up 307.65 points (0.63%) at 49,482.15, the Nasdaq up 288.40 points (1.26%) at 23,152.08, and the S&P 500 up 56.06 points (0.81%) at 6,946.13 [1] - European indices also saw gains, with Germany's DAX30 up 153.73 points (0.61%) at 25,175.38, the UK FTSE 100 up 115.21 points (1.08%) at 10,795.80, and the France CAC40 up 39.86 points (0.47%) at 8,559.07 [2] Cryptocurrency - Bitcoin surged nearly 8% to $69,141.45, while Ethereum rose over 14% to $2,111.69 [3] Commodities - Light crude oil futures for April delivery fell by $0.21 to $65.42 per barrel, a decrease of 0.32%, while Brent crude oil futures for April delivery increased by $0.08 to $70.85 per barrel, a rise of 0.11% [3] - Spot gold rose by 9% to $5,168.92, and spot silver was reported at $89.245 [4] Company News - Nvidia (NVDA.US) reported Q4 revenue of $68.1 billion and data center revenue of $62.3 billion, both exceeding market expectations, and provided an optimistic revenue forecast for Q1 of FY2027 at approximately $78 billion, surpassing Wall Street's average expectation of $72.6 billion [10]

Market Performance - The three major U.S. indices closed higher, with the Dow Jones up 307.65 points (0.63%) at 49,482.15, the Nasdaq up 288.40 points (1.26%) at 23,152.08, and the S&P 500 up 56.06 points (0.81%) at 6,946.13 [1] - In Europe, the DAX30 index rose by 153.73 points (0.61%) to 25,175.38, the FTSE 100 increased by 115.21 points (1.08%) to 10,795.80, and the CAC40 gained 39.86 points (0.47%) to 8,559.07 [2] Cryptocurrency - Bitcoin surged nearly 8% to $69,141.45, while Ethereum rose over 14% to $2,111.69 [3] Commodities - Light crude oil futures for April delivery fell by $0.21 to $65.42 per barrel, a decrease of 0.32%, while Brent crude oil futures for April delivery increased by $0.08 to $70.85 per barrel, a rise of 0.11% [3] - Spot gold rose by 9% to $5,168.92, and spot silver was reported at $89.245 [4] Macro News - The New York Fed indicated that the attractiveness of government bonds has decreased, leading to a rise in the "natural rate" by approximately 1 percentage point since 2019 in the U.S. and other developed economies [5] - Atlanta Fed President Bostic warned that the independence of the Federal Reserve has been eroded due to tensions with the White House, which could undermine public trust in the central bank [6] - Fed official Schmidt emphasized that high inflation remains a key issue for the Fed, although he did not specify how monetary policy should respond [7] Corporate News - Nvidia reported strong Q4 earnings with revenue of $68.1 billion and data center revenue of $62.3 billion, exceeding market expectations, and projected Q1 2027 sales of approximately $78 billion, surpassing Wall Street's average forecast of $72.6 billion [9]

Core Insights - The global key interest rates are rising, primarily due to the declining attractiveness of government bonds as "safe and liquid assets" [1] - The "natural rate" of interest, which reflects the equilibrium rate when the economy is fully operational and inflation is stable, has significantly increased since 2019, by approximately 1 percentage point in the US and other developed economies [1] - The decrease in demand for the safety and liquidity of government bonds may explain up to half of the increase in interest rates, as evidenced by the narrowing spreads in US corporate bonds [1] Group 1 - The natural rate is a theoretical concept but plays a crucial role in monetary policy, serving as a reference for central banks to determine whether policy rates are too tight or too loose [1] - The analysis indicates that both the US natural rate and its global counterparts have shown a clear upward trend post-COVID-19 [2] - From 1990 to 2019, a strong preference for safety and liquidity among investors led to declining yields on government bonds, which in turn lowered the natural rate [2] Group 2 - In addition to the declining attractiveness of government bonds, expectations of productivity gains from artificial intelligence are also potential factors driving the rise in the natural rate [2] - Challenges such as demographic shifts and rising military spending expectations may lead to an increase in the debt-to-GDP ratio for some economies, which could be factored into market interest rate expectations [2]

Core Insights - The global "natural rate of interest" has statistically increased by approximately 1 percentage point since 2019 in the U.S. and other developed economies [1] - The decline in the attractiveness of government bonds' "safety" and "liquidity" accounts for about 50% of the rise in interest rates [1] - Key factors contributing to the increase in interest rates include the diminished appeal of government bonds, AI-driven productivity growth prospects, and the surge in government debt-to-GDP ratios [1] - The shift in the natural rate of interest will significantly influence the interest rate decisions of the Federal Reserve and global central banks [1]

Core Viewpoint - The expectation of a GDP growth target set between "4.5% to 5%" is likely to be realized, which has contributed to the decline in bond yields, as this figure is lower than the previous market expectation of "around 5%" [2][3] Group 1: Impact of GDP Growth Target on Bond Yields - A lower GDP growth target is perceived by some investors to correspond with lower interest rates, but this view is debatable as it conflates the growth target with potential economic growth [3] - The natural interest rate, which aligns with maximum economic output and price stability, should match the macro-level interest rates in the long term [3] - The downward adjustment of the annual GDP growth target is not necessarily beneficial for the bond market and may have a neutral to slightly negative impact [3] Group 2: Monetary Policy and Economic Stability - The fundamental goal of financial macro-control is to stabilize economic operations, with economic performance being the core factor influencing monetary policy [4] - When the demand for economic growth is strong, monetary authorities typically lower policy rates and increase liquidity, which is favorable for long-term interest rates [4] - Conversely, a lower economic growth target reduces the necessity for aggressive monetary policy actions, negatively impacting bond market valuations [4] Group 3: Bond Market Outlook - The bond market is expected to remain in a low volatility state until the end of February, with limited space for yield fluctuations, likely stabilizing around 1.8% to 1.9% for the 10-year government bond yield [4] - A significant downward shift in the 10-year government bond yield is anticipated to occur after expectations for a reduction in the 7D OMO rate materialize, but the extent of this shift is expected to be limited [5][6] - The current yield spread between the 10-year bond yield and the 7D OMO rate is only 42 basis points, indicating that substantial compression of this spread is challenging [6]

Report Industry Investment Rating - Not provided Core Viewpoints - The expectation of a 2026 GDP growth target of "4.5% to 5%" has become a catalyst for the decline in bond yields, but this view is debatable as it confuses the growth target and potential growth rate. The impact of the downward shift in the annual GDP growth target on the bond market is not necessarily positive and may be slightly bearish [1][10]. - From the counter - cyclical perspective, when the economic growth target is higher than the current actual level, monetary policy is favorable for long - term interest rate products like 10Y Treasury bonds. Conversely, a lower economic growth target makes monetary policy less necessary and less urgent, which is unfavorable for bond market valuation [2][11]. - From now until the end of February 2026, the bond market will remain in a low - volatility state, with the 10 - year Treasury bond yield likely to stabilize around 1.8% - 1.9%. In March, market volatility may increase due to important meetings. The 10 - year Treasury bond yield's central value is likely to decline after the expectation of a 7D OMO interest rate cut forms, but the decline will not be large [3][11][12]. Summary by Relevant Catalog "4.5% to 5%" Expectation and Long - Term Bond Yields - Some investors expect the 2026 GDP growth target to be "4.5% to 5%", and the probability of this expectation coming true is not low. This lower - than - expected target has led to a decline in the 10 - year Treasury bond yield from 1.90% on January 7 to 1.82% on January 26 [1][8]. - The view that a lower GDP growth target corresponds to a lower interest rate level is debatable because it confuses the growth target and potential growth rate. In the medium - to - long - term, the decline in potential economic growth corresponds to the decline in bond market yields, but market interest rates are also affected by monetary policy [1][10]. - The downward shift in the annual GDP growth target is not positive for the bond market and may be slightly bearish. From the counter - cyclical perspective, a lower economic growth target makes monetary policy less necessary and less urgent, which is unfavorable for bond market valuation [2][10][11]. Bond Market Outlook - From now until the end of February 2026, the bond market will be in a low - volatility state, with the 10 - year Treasury bond yield likely to remain stable around 1.8% - 1.9%. In March, due to important meetings, market volatility may increase [3][11]. - The central value of the 10 - year Treasury bond yield is likely to decline after the expectation of a 7D OMO interest rate cut forms, but the decline will not be large. The current spread between the 10 - year Treasury bond yield and the 7D OMO interest rate is 42bp, and it is difficult to significantly compress this spread [3][12].

Core Viewpoint - The focus of investors is shifting from the interest rate decision to the guidance on the future tightening path from the Bank of Japan, particularly comments from Governor Kazuo Ueda after the meeting [1][2]. Group 1: Interest Rate Expectations - The market anticipates the Bank of Japan will raise the overnight lending rate by 25 basis points to 0.75%, the highest level in thirty years [1]. - Nomura's analysis suggests that the rate hike decision alone may not catalyze further increases in yields, as the market has already priced in these expectations [1][2]. - There is skepticism regarding whether Ueda will indicate a significantly higher neutral rate than the current market pricing of 1.5% [2]. Group 2: Future Rate Guidance - Analysts believe that if the Bank of Japan fails to convey a faster tightening pace than the market expects, the meeting could be perceived as a "non-event" [1]. - The consensus indicates that the policy rate may reach 1.0% by mid-2026, and any signals of continued rate hikes in 2026 would not surprise the market [2]. Group 3: Market Reactions and Currency Implications - A simple rate hike may not be sufficient to support a stronger yen; Ueda would need to suggest an accelerated pace of rate increases to prevent yen depreciation [3]. - The current average rate hike pace since the end of negative interest rates is approximately every seven months, with market expectations for the next increase to occur by the third quarter of 2026 [3]. Group 4: Fiscal Policy Considerations - While the focus is on the central bank meeting, fiscal policy developments are also important, with key tax reform outlines and preliminary budget proposals expected around December 19 and 26 [4]. - The potential removal of income limits proposed by the Democratic Party for the People could lead to significant tax revenue losses, impacting yields and the yen [5]. - If the initial budget for fiscal year 2026 can be kept below 122.4 trillion yen, it may be viewed positively by the bond market; exceeding 125 trillion yen would have negative implications [5].

Core Viewpoint - The Bank of Japan is expected to raise its benchmark interest rate to the highest level in 30 years, reflecting increased confidence in achieving stable inflation targets. The market's focus has shifted from "whether to raise rates" to "how the future rate path will unfold" [1]. Group 1: Interest Rate Increase - The overnight lending rate is anticipated to be increased by 25 basis points to 0.75% during the upcoming two-day meeting [1]. - This will mark the first unanimous support for a rate hike since Governor Ueda took office, with all surveyed analysts predicting an increase [2]. - The decision is bolstered by strong wage growth and manageable external risks, leading to a consensus on the rate hike [2]. Group 2: Future Rate Path - Despite the expected increase, the Bank of Japan officials believe that even at 0.75%, the rates will still be below the so-called "neutral rate" [3]. - The neutral rate is estimated to be between 1% and 2.5%, indicating potential for further rate increases beyond the immediate hike [3]. - Japan's inflation rate has consistently met or exceeded the 2% target for three and a half years, suggesting that the monetary policy remains accommodative even after the rate hike [3]. Group 3: Balancing Risks - Governor Ueda faces the challenge of balancing hawkish and dovish signals, which is crucial for managing market expectations [4]. - If the communication regarding future rate outlook is too dovish, it may lead to a depreciation of the yen, while hawkish signals could result in rising bond yields [5]. - Political factors complicate the decision-making process, as Prime Minister Kishida is known for supporting stimulus policies, making the communication between the central bank and the government critical [5].

Core Viewpoint - The Bank of Japan is expected to raise its benchmark interest rate to the highest level in 30 years, reflecting increased confidence in achieving stable inflation targets [1][4]. Group 1: Interest Rate Increase - The overnight borrowing rate is anticipated to be increased by 25 basis points to 0.75%, marking the first rate hike since January of this year [1][5]. - This decision is expected to receive unanimous support from the board, which would be the first time Governor Kazuo Ueda achieves full backing on a rate hike during his tenure [1][4]. Group 2: Economic Indicators - Recent economic data shows solid wage growth momentum in Japan, and the impact of U.S. tariffs on the Japanese economy is less severe than previously feared [4][5]. - The interest rate swap market indicates a 95% probability of a rate hike at the upcoming meeting, nearly doubling from early last month [5]. Group 3: Future Rate Path and Communication - Market focus is shifting to how the Bank of Japan will outline its future interest rate path, with some officials believing that even a rate of 1% would still be considered low [4][6]. - The central bank may emphasize that the financial environment remains accommodative, suggesting further rate hike potential even after the increase to 0.75% [5][6]. - Balancing hawkish and dovish signals is seen as a core challenge for Governor Ueda, especially in light of Prime Minister Fumio Kishida's push for economic stimulus [6].