Recently, global markets have been gripped by a powerful financial storm, the core of which is a sharp rise in US Treasury yields. The storm, dubbed the "Bondcano," and its eruption triggered widespread market shocks. Meanwhile, the dollar has remained strong for ten consecutive weeks, with global risk assets under heavy pressure. This article will take an in-depth look at the causes of this phenomenon and explore its potential impact on the global market.
U.S. Treasury yields climbed
The climb in U.S. Treasury yields is at the heart of the "U.S. Treasury volcano" for a number of reasons. First, the federal funds rate, as well as the 2-year Treasury yield, have risen by more than 500 basis points (BP) over the past two years, with the latter even surpassing 5.15% to its highest level since June 2007. This climbing trend has raised concerns in the market, especially in anticipation of whether the Fed will raise interest rates. Investors began to reassess the risks in the bond market, which led to huge losses for bond bulls.
The dollar is strong
Meanwhile, the dollar index rose for ten consecutive weeks for the first time since 2014. The reasons behind this firmness include confidence in U.S. economic growth, as well as uncertainty over the global macro backdrop. The market began to reassess the role of the dollar and seek safe-haven assets, which allowed the dollar to continue to strengthen. However, this has also had an impact on global currency markets and foreign exchange markets, particularly the pressures on emerging markets.
Financial pressure in emerging markets Emerging markets have come under tremendous financial pressure under the eruption of the "U.S. debt volcano". Capital outflows and currency depreciation threaten the stability of these markets. Many emerging-market central banks have been forced to tighten in support of their currencies, but this could have a negative impact on growth. This makes emerging market assets less attractive, causing investors to pull out of these markets, which in turn exacerbates financial pressures.
conclusion
The eruption of the "U.S. Treasury Volcano" has had a big impact on global markets, with rising U.S. Treasury yields and a strong U.S. dollar as its core drivers. This phenomenon has sparked a reassessment and uncertainty in the market, especially concerns about whether the Fed will raise interest rates. Emerging markets are under pressure from capital outflows and currency depreciation and need to take steps to maintain stability. Investors need to pay close attention to market dynamics and make informed investment decisions to adapt to this challenging market environment.