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Peter Davis

An writer at FOMOdrive

  • Oct 04, 2023
  • 2 min read

The destruction of the US government bond market is becoming global in nature

Momentum is increasing for the decline in the US government bond market.

The eradication of the US national debt is becoming a global phenomenon.

The dollar was strengthened as US Treasury yields rose to their highest levels in multiple years.

Investors are greatly worried about this, and it is evident in the stock markets.

An increase in US Treasury yields will make it more challenging for US government entities to borrow money again.

Expectations that the Federal Reserve will keep interest rates higher for longer than previously anticipated in order to combat inflation are driving the US debt market's sell-off. Additionally, the regulator may raise the rate again in either November or December.

The avoidance of a government shutdown last weekend was another factor that suggests the Federal Reserve will raise interest rates.

The yield on 30-year US Treasury bonds (30-UST) rose above 5% for the first time since August 2007 on Wednesday, according to RBC. Additionally, the yield on the 10-year bond (10-UST) increased to 4.89%, the highest it has been in the last 16 years.

Ray Dalio, the founder of Bridgewater, believes that the 10-year US Treasury yield could soon reach or exceed 5%.

A decrease in costs in the 25 trillion dollar US bond market is causing strain on bonds globally. In Germany, 10-year bond yields surpassed 3% for the first time since the eurozone debt crisis in 2011.

In Japan, the yield on 10-year bonds increased to 1%, the most elevated since the start of this year. Yields on UK government bonds climbed to a 25-year peak.

As government bonds become more expensive to purchase due to rising yields, investors require higher interest rates in order to make the new borrowing more feasible to service.

Politico reports that the US Treasury is expecting to borrow $1.85 trillion from the markets by the end of the year to finance its budget. This is a common occurrence for many other nations as well.

Jamieson Coote stated that due to the current bond yield levels, investors will be drawn away from riskier asset classes as they do not need to take on more risk to gain attractive returns.

Pendal Group states that whenever there is a sharp increase in real bond yields, the stock market will inevitably suffer a decrease.

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