The Great Decoupling

Oct 5, 2023 • 10 Min Read

What Happens When Bonds Have a High Emissions Schedule

Traditional markets have undeniably faced a whirlwind of volatility over the past week. The bond market continued its recent trajectory with the long end of the yield curve soaring to new multi-decade highs. At one juncture, the 30-year yield even brushed against the 5% mark, a development that has rattled both bond and equity investors.

Concurrently, the DXY index maintained its bullish run. This robust performance is underpinned by a combination of factors: strong domestic economic data, a Federal Reserve seemingly committed to a prolonged period of higher rates, and a growing fiscal deficit that has increased the Treasury's financing needs in the face of a reduced pool of international debt buyers.

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Turning our attention to the MOVE index, a reliable barometer for market lending appetite and overall financial anxiety, we observed a surge past the 140 level for the first time since the SVB winddown. Contrary to the volatility observed in Q1/Q2, which was primarily caused by shifts at the curve's front end, this time it was the curve's long end that inflicted the damage. A spike in this key metric often presages challenging times for risk assets, signaling the potential emergence of vulnerabilities within the br...

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