This has been another crazy week on the markets, as the truth of higher rates for longer has started to permeate not only bond markets, but equity markets too.
And after a stunningly strong U.S. jobs report bolstered the case for more tightening from the Federal Reserve, the U.S. Treasury yield surge that has shaken markets in recent weeks may have further to run.
As I discussed in my last show, US Jobs growth for September nearly doubled expectations as nonfarm payrolls increased by 336,000 for the month, strengthening views that policymakers will need to keep interest rates elevated to cool inflation.
That’s bad news for investors who were looking for a respite from a rise in Treasury yields that has wreaked havoc throughout markets over the past month, bruising stocks, supercharging the dollar and pushing mortgage rates to their highest levels in more than two decades. Treasury yields of course move inversely to bond prices.
The interplay between bearish fractals and potential bullish triggers continues to shape the unpredictable landscape. But we need to watch the unrealized losses among holders of bonds, because at some point the truth will out. And meantime, equities are still priced for a goldilocks soft landing, which is probably unlikely.
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