At What Level of the 10 year US Government Bond Yield a US and Global Stock Market Crash Could be Triggered?

 

Dear Reader,

The yield on 10 year US government bonds is at 1.169 %.

Many analysts are saying if the yields on government bonds rise a lot, this could trigger a stock market crash. And the 10 year US government bond yield is the obvious global benchmark for the yields on bonds.

I forecast that when the yield on 10 year US government bonds starts nearing  3 %, stock markets in the US and the world over could easily fall by more than 30 % to 40 % measured by the main stock market indices.

The main reason for that is that  higher yields would make US government bonds more attractive, capital will flow in the US bond market, which in turn will appreciate the USD exchange rate to all other currencies. As most assets are measured in United States Dollars this would bring a fall in the price of equities and commodities. Global stock market indices could fall more than 30 % and the Nasdaq Composite could fall more than 50 %.

Will the yield on the 10 year US government bonds reach 3 %? Not in 2021, I think. The US government is well aware of the effect that a very expensive USD could have on global markets. So I think the USD will appreciate mildly, which will limit the gains of stock markets, but stock market indices, especially the Nasdaq will go on rising, nonetheless. 

What is more, a very strong US dollar could have a devastating effect on emerging markets which mainly finance their government and corporate debt in USDs. Thus, emerging markets seeing their aggregate output going down, on their turn will stop consuming US and Western European goods, which will slow the global economy and the proverbial and expected economic recovery from the coronavirus could prove illusive. 

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Petar Vladimirov Posledovich is not liable for any investment losses incurred by reading and interpreting blogposts on this blog and posts on social networks.

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Respectfully yours,

Petar Posledovich