Pro Perspectives 8/17/23





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August 17, 2023

The U.S. 10-year yield traded up to 4.32% today.  Let's revisit the events that have occurred over the past year, when the 10-year has traded above 4%.  
We've stepped through each of these events many times in my notes.  Suffice to say that this level of the U.S. 10-year yield, the world's most important interest rate (the anchor for global rates), has revealed vulnerabilities in the global financial system — vulnerabilities that were created from the zero interest rate and QE world (of much of the past 15 years).
For perspective, the last time the 10-year yield traded above 4.30% was last Octoberon the day the Bank of Japan intervened to both defend the yen, and relieve the pressure in global interest rate markets.
The time before that was 2007
At that time, the U.S. government debt load was 62% of GDP.  Today is more than double that burden.  And the Fed's balance sheet was $800 billion.  Today it's over $8 trillion.
Clearly, we're in uncharted territory.  Will China's highly-indebted property developers be next?  It's looking more likely.  What has been a slow moving crisis (over years), stemmed by Chinese government intervention along the way, has accelerated over the past week.  The dominos appear to be lining up.