London | Brisbane. 28 September 2026.
On 17 August our press release was titled “Are Yields About To Blow Up?”. On that date the 5 year UST yield was 4.35%. This week’s “failed” auction went out at 5.03%, that’s a 15% increase in 6 weeks. Wall St’s hyperbole would be “Catastophic”.
It’s the speed of increase that will crash markets. In March 2023 the FED started raising rates after 2 years of zero rates post COVID. In all, 425bps of hikes over 14 months. During this time the USD 10 year yield rose 125bp. Famously Powell christened this inflation as “transitory” for almost a year before having to admit that he was wrong. The consequences were NASDAQ losing 23%, S&P 11%, crypto winter with the FTX and Terra-Luna debacles and freezing of the US housing market. The speed caused a regional banking crisis which took down Silicon Valley Bank and others.
Core YoY CPI is clearly above 2% across western economies. But its trajectory is that it’s slowly going lower. The Ukraine/Russia and US/Iran wars have driven energy prices significantly higher and that is what is stopping CPI going back to target.
Even more confusing for markets is the US debt situation. Bond markets selling off sharply now are more about the dire US fiscal situation than inflation.
Let’s hope that Mr Warsh’s new hiking cycle is not set on an anti-transitory policy because of Powell’s blunder. Rapid rate increases will crash more than just bond markets.