- U.S. Dollar Soars As 10-Year Yields Rise 10%
- Stocks Collapse, Driving Risk Currencies Lower
- AUD Hit Hardest By Risk Aversion
- Euro Most Resilient
- U.S. Personal Income, Spending Numbers Next
Yields are rising because investors are optimistic. They believe a strong sustainable recovery is right around the corner and prices will rise as demand comes roaring back. In this type of environment, bond yields should be higher regardless of whether the Fed raises interest rates. Currencies are particularly sensitive to interest rates, which explains why the U.S. dollar had such a significant reaction to the 10% spike. The same is true for stocks. Rising yields increase borrowing costs and affect the discretionary incomes of consumers. A 1% to 1.5% increase is big on a percentage basis, but on an absolute basis, it is still very low. It took some time for the U.S. dollar and stocks to respond, but we could see a multi-day rise in the greenback and corresponding slide in equities.