Interest Rate Risk · Full chronicle and history

New York Fed President Williams publicly stated that there is no need to rush to raise interest rates. Affected by these remarks, the probability of a rate hike in October fell from a high level to 50 percent.

In the first half of 2026, large banks were net sellers of ultra-long-term government bonds with maturities of more than 20 years to the tune of 911.6 billion yuan, while small and medium-sized banks were net sellers of 321.5 billion yuan of such bonds and net buyers of 1.98 trillion yuan of short-term government bonds with maturities of less than one year. Meanwhile, rural commercial banks have deposit costs of about 1.6% to 1.9%, while the yield on one-year government bonds is only about 1.2%. Banks are buying bonds at a loss, reflecting the pressure of an asset shortage and an inverted rate spread.

Rising inflation forced the Federal Reserve to begin raising interest rates to 3.75%-4% in September, with the 10-year Treasury yield breaking through 5.3%, hitting a new high since 2002.

Without any advance notice, the U.S. Treasury suddenly announced that it would raise the liquidity buyback cap for long-end old bonds with maturities of 10 to 30 years from $2 billion per operation to $4 billion.

After a long tug-of-war, the Treasury and the Federal Reserve signed a famous accord, under which the Federal Reserve was freed from the obligation to peg government bond interest rates and regained the power to set interest rates, laying the foundation for central bank independence.