The selloff in US bonds has sparked a global dump of developed world sovereign debt.
Since US yields started rising after the Fed meeting in Sept, global bond yields are higher, while the dollar and gold are surging, reflecting an increasingly global debt contagion.
Thread.
Since US yields started rising after the Fed meeting in Sept, global bond yields are higher, while the dollar and gold are surging, reflecting an increasingly global debt contagion.
Thread.
While many in the US are laser focused on the US yield rise in recent weeks, what is notable is how it looks to be flowing through to global bond markets in a way that is pretty disconnected from their own underlying domestic conditions.
US yields up nearly 70bps since mid-Sept
US yields up nearly 70bps since mid-Sept
UK yields have risen in line.
German yields are up despite very weak economic reports.
Aussie yields sharply higher.
Canadian yields are rising despite very weak economic conditions and outsized cuts from the BoC with indications of further cuts ahead.
Even Japan which has scrapped intentions of a more aggressive hiking cycle has seen yields move higher.
While nearly all bond markets have sold off during this period, what makes the contagion particularly stark is that these bond markets have sold off while the currencies have also sold off.
The yen being the most notable of course, moving 13pts since Sept 16th.
The yen being the most notable of course, moving 13pts since Sept 16th.
But so too the euro is down vs. the dollar.
Sterling is starting to fall in recent days after a short-lived pop.
Same pattern with AUD, now pushing back toward cycle lows.
And CAD pushing new lows vs. the dollar as well.
Taken together this is a pretty acute move both out of these countries bonds, but also out of their currencies, suggesting a pretty full scale withdrawal of capital from global sovereign debt markets and currencies, particularly if thought about in gold terms.
Everywhere investors are dumping long-term gov bonds.
It seems the global central bank shift to easier monetary policy punctuated by the Fed meeting in Sept has sparked a serious questioning of the current value of developed world sovereign bonds at the current level of yields.
It seems the global central bank shift to easier monetary policy punctuated by the Fed meeting in Sept has sparked a serious questioning of the current value of developed world sovereign bonds at the current level of yields.
For many developed economies facing slower economic conditions and fading inflation pressures, these moves are all the more notable because they run counter to the trends in underlying domestic conditions and intended monetary policy.
While this repricing of sovereign debt has a direct impact on bond holders, the rising cost of capital is likely to become a drag on global equity markets from both the undesirable economic tightening and rising discount rates. Already we are seeing some leveling off in markets:
Sovereign debt yields serve as the backbone of global financial asset pricing along with real economy borrowing transactions.
A further flight out of sovereign debt risks creating a broader drag on other financial assets and these economies.
A further flight out of sovereign debt risks creating a broader drag on other financial assets and these economies.
The combination of a commitment to 'over easy' money from central banks and continued expansionary fiscal policies across governments are driving this trend to continue.
It creates an increasing risk of a challenging repricing of higher risk-premiums and discount rates ahead.
It creates an increasing risk of a challenging repricing of higher risk-premiums and discount rates ahead.
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