The U.S. bond market keeps sending signals to Washington: the Federal Reserve needs to raise interest rates!

The US Treasury market is sending a clear signal: the current interest rate level is still not enough to contain potential economic overheating. As traders' expectations for the Federal Reserve to raise interest rates by at least 25 basis points as early as October this year heat up, the yield on US 2-year Treasury bonds has soared to its highest level in over a year, reaching about 4.15%, significantly higher than the Fed's policy range of 3.5%-3.75%. This deviation has been evident since March of this year, reflecting a repricing of market-sensitive assets. Last week's stronger-than-expected nonfarm payroll data exacerbated market expectations for rate hikes, and reinforced concerns about inflationary pressures and potential overheating driven by artificial intelligence. The CPI and PPI data for May, which will be released this week, are expected to further confirm this trend. US bond yields climb: clear tightening effect on the Federal Reserve Jack McIntyre, portfolio manager at Brandywine Global Investment Management, said: "Interest rates have to some extent already acted as a constraint on the economy, but until new economic variables emerge, US Treasury yields may remain elevated." The yield on the 2-year US Treasury bond, which is extremely sensitive to policy changes, is trading at around 4.15%, far above the upper limit of the Fed's policy range of 3.50%-3.75%. The yield on the 30-year Treasury bond has reached 5.19%, approaching the peak of 2023. The impact of rising US Treasury bond yields has spread across the entire yield curve, putting pressure on Federal Reserve Chairman Kevin Warsh. Warsh will preside over his first monetary policy meeting and press conference next week. Warsh had previously advocated for looser rates, believing that current policy was too strict. However, the bond market is increasingly concerned that the Fed may be behind the curve in responding to inflationary and overheating economic risks. Andrzej Skiba, head of US fixed income at RBC Global Asset Management's BlueBay, pointed out that spending on artificial intelligence has driven economic activity, leading him to start worrying for the first time that the US economy may be showing signs of overheating. There are two inflationary storms gathering in the eye of the hurricane: Middle Eastern energy shocks and a boom in AI spending. The first is the Mid...