The question for investors is how to make sense of the volatility arising from the tension between the higher-for-longer interest rate environment, and capital flows to assets deemed safe during times of turmoil like war.
t. Yet despite this inflationary pressure, the clamour for safe haven assets saw bond yields fall, and by Tuesday, long duration bonds were 20 to 25 basis points lower.
Financial conditions tighten with rising bond yields and ease if term bond yields fall. In contrast to Australia – where the variable mortgage rate regime gives far more potency to official cash rates – fixed rate regimes, such as the US, have financial conditions that are far more dictated by market forces.
Given the recency to this move higher, the question is, what will happen when financial conditions remain tight? Things are more likely to break. Just when and where is difficult to pinpoint. impaired, causing a headwind to lending activity and money supply and, ultimately, economic activity.Treasuries – has been an easing of financial conditions. This perhaps explains why US stocks have rallied; not just oil stocks as one would expect in a Middle East conflict.
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