From below snapshot: 🚨“This is no ordinary bond sell off.” ‼️“And if it persists, it could mark the beginning of a structural economic shift more enduring and more globally consequential than most previous episodes of market volatility.” Governments intervening to influence regular market dynamics is not a good thing. But that’s what happened yesterday when US Treasury offered liquidity to US Government Bonds. ⚠️ This may mask, mitigate and postpone a current/developing risk. But the underlying risk may still exists. 👀 Despite Equity Markets moving consistently higher the Bond Markets have been pricing in greater and greater risk premiums. When bond prices fall it is a signal that investors/lenders are demanding a greater compensation. Higher interest rates lead to higher real borrowing costs for everyday PEOPLE (mortgages, car loans, etc), BUSINESSES (where higher borrowing costs eat into profits and eventual may choose or be forced to postpone or forgo funding plans that ultimately can lead to lower growth) and GOVERNMENTS (who are forced to pay higher $ amounts on new and maturing debts used to pay for their various programs and initiatives). Currently - demand for longterm US Government bonds is so low that investors are demanding higher yields to reflect the growing US deficits, ongoing Iran conflict and concern that there may be a return of higher inflation. 📈 So far - Corporate Bonds have ticked higher but haven’t demanded their own higher risk premiums as of yet. But this is something all investors should be aware of. If higher Government rates persist than companies planning large debt raises to fund new projects may be forced to match the higher rates in order to raise the needed capital. This is a real cost and potential bite out of future (expected and actual) profitability. 😬 The impact of higher rates can be felt everywhere and eventual they can trickle through to Equity markets. In 2022 we saw how the inflation driven rate hikes impacted markets (20%+ drawdown). While the driver/trigger this time may be different the result has the potential to have a similar impact for equity markets. 📉 Macro trends move slow. But this is something investors should be aware of. 🧐 Depending on your approach and risk tolerance some investors may want to considerer reviewing their asset allocation and determining how their portfolio may be impacted if rates lead to another market drawdown. ⚠️ Perspective ≠ Prediction Do what’s best for you. 😉👍
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2 Comments
Clantosa @clantosa · 6h
Honestly I don't know how bonds aren't yielding 10%+ the national debt is way too high inflation is far higher than they try to pass it on as and confidence in the US is at a low in my opinion. We need high rates to force the nation to actually do something about the debt
L G@junky12 · 7h
Time to buy some TLT?
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