A Volatility Vortex.
How big is infinity?
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1. The $24 trillion US Treasury market has been hit with its most severe bout of turbulence since the coronavirus crisis, underscoring how big swings in international bonds and currencies and jitters over US rate rises have spooked investors. The Ice BofA Move index, which tracks fixed income market volatility, has reached its highest level since March 2020, a time when deep uncertainty about how the pandemic would affect the world economy set off massive fluctuations in US government bonds. “Right now it is all about market volatility,” said Gennadiy Goldberg, a strategist at TD Securities. “You have investors staying away because of the volatility — and investors staying away increases volatility. It is a volatility vortex.” (Source: ft.com)
2. Treasury 10-year yields climbed above 4% to the highest level since October 2008, as investors were rattled by Federal Reserve hawkishness and concern over potential Japanese sales of US government debt. An index of US sovereign securities extended its worst year since at least the 1970s after St. Louis Fed President James Bullard warned the central bank has to keep raising interest rates to retain its credibility. US debt is also under pressure due to speculation the sliding yen will compel Japan to conduct more intervention, potentially funded by Treasuries sales. The benchmark US 10-year yield jumped 7 basis points to 4.015% Wednesday. It has now climbed around 250 basis points in 2022. Treasuries are headed for their biggest annual loss since least 1973, with a Bloomberg gauge of the debt slumping 14% this year. (Source: bloomberg.com)
3. China’s renminbi fell to the lowest level since 2008 as the country’s central bank holds back from intervening to prop up the currency in response to the rallying dollar. The renminbi is the latest major currency to succumb to a wave of dollar strength that has sent exchange rates from the pound to the yen spiraling lower this year. As the People’s Bank of China pursues monetary easing to shore up economic growth, continued policy divergence with the hawkish US Federal Reserve is expected to push the Chinese currency down further. The PBoC has so far stopped short of deploying significant foreign exchange reserves, instead relying on indirect measures to discourage bets on continued falls and slow the pace of depreciation. (Source: ft.com)
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