U.S. Manufacturing Sector Expands at Fastest Pace in Four Years, While Bond Market Enters “Credit Blind Zone”

BlockBeats News, August 3rd, the Institute for Supply Management (ISM) data showed that the U.S. July Manufacturing PMI rose to 55.6, hitting a new high since May 2022, staying in the expansion zone for the seventh consecutive month.

The data showed that the U.S. July manufacturing production index rose to 58.5, reaching the highest level since the end of 2021, with new orders maintaining strong growth. Manufacturing employment also saw its first increase since September last year, indicating enhanced business confidence in the future economic outlook.

However, behind the manufacturing recovery, inflation pressures and bond market risks are still rising. The Middle East situation has repeatedly driven up oil prices, putting pressure on the supply chain and raw material costs. Although the July manufacturing price index fell to 71.1, a five-month low, it still remains at a high level.

The strong economic data combined with inflation concerns have led to recent intense volatility in the U.S. bond market. Mark Cabana, head of U.S. interest rate strategy at Bank of America, stated that the current bond market volatility is a "textbook inflation credibility shock," with the market worrying about insufficient communication on Fed policy.

Cabana pointed out that Fed Chairman Kevin Warsh failed to clearly outline the specific path to achieve the 2% inflation target, and ending the long-used "forward guidance" strategy has also plunged the market into uncertainty.

The data showed that the 30-year U.S. Treasury bond yield has risen to 1.51%, hitting the highest level since 2013, and last Friday, the 30-year U.S. bond yield briefly rose to 5.28%. Bank of America believes that the Fed needs to rebuild market confidence through the September rate decision; otherwise, the pressure on the U.S. bond market may further escalate.