Rising bond yields

By 29/03/2021News

Gold  1727,19

EURUSD   1,1778

DJIA  32792,50

OIL.WTI  59,535

DAX   14857,50

We have written repeatedly about the final outcome of a bull market in equities. As long as central banks print money in huge quantities, the only risk to stock markets is rising bond yields. But is rising yields really that important? Say from 1% to 1.75% on 10-year US Treasuries?



The importance of this indicator can be seen by looking at the forex market situation. Why the EUR/USD is most likely to fall, we wrote the other day. Today is a more global view. And the DXY dollar index is ideal for it.
Let’s look at the daily chart above, which we have deliberately compressed so that a longer term picture can be seen. The yellow moving line on the chart is the 200 SMA. Two days ago the dollar index broke through it from the bottom to the top. This has not happened since last May. That was when the world was sitting on a global lockdown and U.S. lawmakers started handing out money left and right en masse.
What happened next? That’s right, the dollar began to fall against most of the world’s currencies. After a while, the amount of unsecured money began to accelerate dollar inflation. So there were fewer and fewer people willing to buy US bonds at the lowest yield.
As a result, their yields began to rise rapidly. And the dollar index began to rise behind the rise in yields. Unsecured money continues to flow into the economy, but the dollar is no longer falling, but rising.
Now imagine that the yield on 10 year US traded bonds is close to 3% at some point in time. A huge amount of assets around the world would be sold off, and the money freed up would be moved into 10-years with such an attractive interest rate. This will cause the US dollar to rise even faster and stock markets around the world to plummet.

14.00 German consumer price index for March
16.00 US Consumer Confidence Index for March

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