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Good morning. Treasury yields climb to new milestones, the Bank of Japan stands pat and China looks to lure back foreign investors. Here’s w [View in browser]( [Bloomberg]( Good morning. Treasury yields climb to new milestones, the Bank of Japan stands pat and China looks to lure back foreign investors. Here’s what’s moving markets —[ Kristine Aquino]( 16-year high [Treasury 10-year yields briefly hit the highest levels since 2007](as investors weigh a more hawkish Federal Reserve, large US fiscal deficits and persistent inflation. Benchmark bond yields climbed above 4.5% on Friday before eventually retreating. Traders scaled back bets on a Fed pivot from rate hikes after Wednesday, when the central bank raised its projections for future borrowing costs. They’re bracing for further bond selloffs amid surging oil prices and a massive fiscal deficit, alongisde the US economy’s continued resilience. “The 10-year yield isn’t offering enough reward given the longer-term risks posed as investors come to the realization that deficits are so large at a time when the economy is operating at, or beyond, full employment,” said Kellie Wood, a fund manager at Schroders Plc in Sydney, who has been shorting 10- and 30-year Treasuries. Japan holds [The Bank of Japan kept its negative interest rate and the parameters of its yield curve control program intact](on Friday, in an outcome predicted by all 46 economists surveyed by Bloomberg. It also maintained a pledge to add to its stimulus without hesitation if needed, a vow that offers yen bears a reason to keep betting against it. Speaking at a press briefing after the decision, Governor Kazuo Ueda said the distance from being able to adjust the negative rate hasn’t changed much, a comment that suggests that a policy pivot isn’t imminent. “Because we aren’t in a state where inflation accompanied by wage growth — sustainable and stable inflation — is in sight, we’re patiently continuing with monetary easing under the current framework,” he said. Foreigners welcome [China is considering relaxing the rules that cap foreign ownership in domestic publicly traded firms](, people familiar with the matter said. Authorities are pondering policy tweaks to boost overseas ownership in stocks listed in Shanghai, Shenzhen and Beijing as part of a push to open up the market and boost trading, the people said, asking not to be identified as the information is private. The news lifted Chinese stocks following a three-day slide that dragged the benchmark CSI 300 Index to the lowest since early November. China currently caps total foreign ownership in locally listed firms at 30%, and subjects a single foreign shareholder to a 10% limit. Upbeat markets S&P 500 futures were up 0.2% as of 5:40 a.m. in New York, while Nasdaq 100 contracts climbed 0.4%. Treasury yields retreated across the curve, after 10-year rates briefly climbed above 4.5% in early trading in Asia. The Bloomberg Dollar Spot Index was little changed, with the Japanese yen and British pound leading declines among Group-of-10 currencies. Brent crude climbed 0.5% to $93.80 after a three-day drop. Gold and Bitcoin rose. Coming up… At 8:50 a.m., Federal Reserve Governor Lisa Cook will give a keynote address at a National Bureau of Economic Research event. At 9:45 a.m., we’ll get the latest reading on S&P Global’s manufacturing and services gauges. San Francisco Fed Mary Daly will speak in a fireside chat at 1 p.m., and Minneapolis Fed President Neel Kashkari will appear in a separate event at the same time. What we’ve been reading This is what’s caught our eye over the past 24 hours: - [House Speaker McCarthy’s plan to avert government shutdown]( gets ambushed - [Ukraine President Zelenskiy’s UN ouburst]( signals underlying tensions - [Apple’s iPhone 15 draws crowds]( from Australia to China and the UK - A buckling UK services sector [sends the pound to a six-month low]( - Rising global tensions prompts[China’s ultra-rich Gen Zs to flock home]( - [Iceland hikes tourism taxes]( to protect the environment - [How the US lifted children out of poverty](, then threw them back into it And finally, here's what Bloomberg Opinion’s John Authers is interested in this morning We have a new analogy for monetary policy. Huw Pill, the Bank of England’s chief economist, has given a speech in which he favored a “Table Mountain” scenario. In line with the wide and flat peak behind Cape Town in South Africa, the idea is that rates would reach a plateau, and then stay there for a long time. Under this scenario, according to Pill, rates needn’t go quite so high as in a “Matterhorn” scenario, named for the famously sharp triangular Alpine peak, but they would have to stay at that high plateau for an extended period. This is great comparison on many levels, for reasons that go far beyond giving us an excuse to decorate this piece with some beautiful photographs of mountain scenery. Mountaineers say that the greatest dangers are on the descent, not the climb up. It’s at this point that the objective has been met, arms and legs are tired, the brain is perhaps foggy from lack of oxygen, and feet have to be placed downward, toward the void, rather than braced into the cliff face. This is when accidents happen. The same is true of monetary policy. If there’s one more or less clear signal to unite this week’s global round of central bank meetings (with the eternal exception of the [Bank of Japan,]( which left rates unchanged and still hasn’t started to hike), it’s that by and large they hope they’ve reached a plateau. The Swiss National Bank and the [Bank of England]( sprung significant surprises by opting not to raise rates at all, while last week’s European Central Bank meeting did see a rate rise, but also made a concerted effort to convince the market that it might well be the last. [Sweden’s Riksbank]( hiked to 4% Thursday, but sent strong signals that it was done. So maybe we’ve scaled the top of Table Mountain: The analogy works all the better because hills shaped like Table Mountain, with a wide flat top, aren’t that common. Triangular peaks are more usual. And if we look at the course of history, we tend not to see Matterhorns, so much as moves more reminiscent of the Torres del Paine, at the southern tip of Chile. Now, let’s look at the fed funds rate over the last two decades, and over the fateful 20 years starting in 1971. Rates were altogether higher in the ’70s and ’80s, so they’re on different scales, but the Paine-like shape is common to both: Rates tend to move like this because monetary policy is about tightening until something breaks. If a financial crisis or a recession breaks out, rates will have to come down fast. Measured, Matterhorn-like decreases are unusual. And they will now have further to fall, as these central bank announcements have been accompanied by a significant upward breakout in bond yields. In Asian trading, the 10-year Treasury yield reached 4.5% for the first time since the eve of the Global Financial Crisis in 2007 — the kind of landmark that people in the markets will notice. According to Strategas Research Partners, monetary conditions, broadly defined, haven’t been as tight as this since 2007. Or as the firm’s Tom Tzitzouris puts it, “any time conditions reach this level of tightness, a recession is soon to follow.” He added: Part of this tightening was passive; the dot plot indicated yesterday that rate cuts next year are likely to be slower to come. But part of it was simply an acknowledgement by the bond market that until recession hits, yields are going to have to keep rising. When and if recession does hit, or when high rates at last spill over into the much-feared financial accident, rates tend to make like the Torres del Paine, or the equally spectacular Cerro Torre just over the border in Argentina, and fall away in a sheer cliff. Looking further into the increase in yields shows that this is a genuine tightening. The 10-year yield can be split into a rate to cover expected inflation (the breakeven rate), and a remaining “real yield.” The former responds to alarms about inflation, while the latter can be treated as the driver of whether conditions are truly tight. Substantially all of this year’s move has come from higher real yields, while fears about inflation have actually abated a little: The latest step upward is roundly attributed to Jerome Powell of the Fed. Matthew Klein of The Overshoot newsletter suggests that the Fed’s projections imply an economy with “more underlying momentum than previously believed *and* that there is less need to crush the job market to bring inflation back into line by 2026.” That means that the Fed’s “bullishness,” as Klein puts it, is pushing up rates. Unless and until the Fed succeeds in “breaking something” — a large institution, or the economy — yields will be under pressure to rise, rather like the Trango Towers in Pakistan, up into the sky. — John Authers, with assistance from Isabelle Lee Follow Bloomberg Opinion’s John Authers on X [@johnauthers](. Like Bloomberg's Five Things? [Subscribe for unlimited access]( to trusted, data-based journalism in 120 countries around the world and gain expert analysis from exclusive daily newsletters, The Bloomberg Open and The Bloomberg Close. Follow Us Like getting this newsletter? [Subscribe to Bloomberg.com]( for unlimited access to trusted, data-driven journalism and subscriber-only insights. Before it’s here, it’s on the Bloomberg Terminal. Find out more about how the Terminal delivers information and analysis that financial professionals can’t find anywhere else. [Learn more](. Want to sponsor this newsletter? [Get in touch here](. 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