The Great Decoupling
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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PBOC ONE-UPPING THE FED This week, China’s central bank initiated what we believe are the first steps in a broader effort to stimulate the economy, which is struggling to meet its annual growth target of around 5%. These new measures are aimed at reviving economic activity and restoring confidence, especially in the real estate and equity markets, both of which are facing significant challenges. The People’s Bank of China (PBOC)...
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