Treasury Bond Sell-Off Triggers Market Turmoil
Traders are witnessing one of the worst collapses in the Treasury bond market history, causing yields to surge to levels not seen in decades. This sell-off has not only impacted stocks but has also sent shockwaves across other financial markets.
Alongside the significant drop in long-duration US bonds, the benchmark S&P 500 and Nasdaq have tumbled around 7% since the end of July. However, it is essential to recognize that stocks are just a fraction of a growing problem triggered by soaring yields.
Foreign Currencies in Turmoil
As high-yielding Treasuries attract foreign interest, the value of the US dollar has jumped 7% since mid-July. Consequently, this trend has pushed foreign currencies, such as the yen, euro, and British pound, to their lowest levels in months.
“Against this backdrop, we recommend selling the euro, Swiss franc, or British pound against structurally weaker currencies like the Japanese yen, Australian dollar, and Norwegian krone,” advised UBS.
Cryptocurrencies Facing Headwinds
Simultaneously, as yields rise, investors are becoming less inclined to hold risky investments, contributing to the decline of cryptocurrencies. Bitcoin has fallen by 14% since its peak in July, while ether suffered a 22% loss.
Commodities Under Pressure
Treasury rates’ ascent entices investors seeking higher returns on safe investments, negatively impacting non-interest-bearing assets such as gold. Consequently, gold prices have depreciated approximately 7% since late July.
In addition to gold, industrial metals have also weakened due to concerns over economic growth and manufacturing activity. Copper, aluminum, and zinc have faced significant declines in recent months.
Housing Market Slows Down
The surge in US bond yields has led to an increase in mortgage rates, diminishing affordability in the housing market. This has caused a decline in home loan applications, reaching the lowest levels since the mid-1990s. Furthermore, the average rate on a 30-year mortgage has surpassed levels not seen since 2000.
At the same time, the impact of the bond market fluctuation on oil prices remains limited. However, the strength of the US dollar often exerts downward pressure on crude prices due to most oil deals being denominated in dollars. Recently, Brent crude prices have fallen by 10%, reflecting concerns over declining global oil demand.
