The proliferation of leveraged speculation ensures acute fragility. And, to be sure, faith in liquidity backstops and market bailouts is absolutely fundamental to market structure.
The bond market is caught between two contradictory forces: some investors want to get out of U.S. dollar-denominated securities, while the U.S. economy is careening towards recession.
The bond market is sending a message to the U.S. government that its spending is out of control and the reserve currency “privilege” it has abused for the last 80 years is running out.
Financial markets are always pricing in uncertainty and risk, but the task has become dramatically more challenging in recent weeks after the US upended its longstanding trade policy.
European and international stocks are outperforming as the US trade initiatives seek to rebalance international trade, which will of course be reflected in lesser need for USD (capital account reflection).
This week won’t have much on the economic calendar, with the S&P Global Flash PMI the lone standout data point. Government auctions will draw more attention.
On April 2, Trump unexpectedly announced indiscriminate high “reciprocal tariffs,” triggering an unprecedented storm in the global financial markets. The global stock and bond markets suffered an epic bloodbath, with no one spared.
Rising US bond prices have offset the slide in US equities so far this year, but the outlook for fixed income may be more precarious than the current rear-window perspective suggests.
