fxstreet.com 22 Feb, 2021 12:15 am

The market implications of a big treasury sell-off

The market implications of a big treasury sell-off
Growing confidence in the global recovery, especially in the US, is leading to speculation over when the Fed might take its foot off the accelerator a

This was the year the Fed exacerbated the bond market sell-off by discussing the reduction or ‘tapering’ of its US Treasury debt purchases.But the bond market won’t care about that.What the bond market sees is a progression towards a point where the Fed is no longer buying bonds, and beyond that to a point where the Fed will hike rates.The faster this happens, the worse is the mood of the bond market and the more intense is the tantrum; the so-called taper tantrum.

75% target gets brought forward by 3-6 months to mid-2021, and the bond market extrapolates more of the same in H2, targeting a break above 2%, and beyond.The EM local currency (LCY) bond market should follow a similar script to EM FX in terms of vulnerabilities to a tantrum, with high yielding bonds understandably more vulnerable than the low yielders.

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