Harvest Moon.

Vertiginous flight

---

1. Ambrose Evans-Pritchard:

The vertiginous flight from US Treasury bonds over the last month poses a clear and present risk to the global financial system, threatening to destabilize the collateral that underpins a $170 trillion nexus of international credit.

Yields on 10-year Treasuries – the anchor price of world money – have risen by 120 basis points since mid-May, touching a 15-year high of 4.7pc this week. 

This is a greater credit shock than the stress that triggered the collapse of Silicon Valley Bank and its regional peers in February. That festering headache is currently being masked by emergency liquidity from the Federal Reserve and a backstop from the Federal Home Loan Bank Board, but the deeper crisis of solvency that lies behind it has not gone away.

Today’s unfolding bond rout is a variant of the Truss gilts saga last year, which led to a chain of margin calls and a vortex of doom in the mortgage market, before the Bank of England saved the day. This time it is happening in America’s $25 trillion Treasury market. Think of it as Liz Truss writ global. 

Rising US yields are forcing up European yields, even as the eurozone slides deeper into an economic slump, and bank lending contracts. The effect is playing havoc with dollar debt contracts in Asia and across emerging markets. It is even complicating China’s attempts to shore up the property market and prevent contagion to the shadow banking system…..

“This is not (yet) a credit crisis like 2008-2009,” said Michael Howell from CrossBorder Capital. “It is a duration crisis resulting from a lack of willing buyers of longer-dated debt. Investors are losing their appetite for Treasuries at a time when their supply is slated to soar,” he said. (Source: telegraph.co.uk)

---