Currency and bond chaos ahead

The Fed’s signal that further interest rates cuts are not a given is roiling currencies and foreign bond markets. This mega-credit bubble is popping…

First, let’s look at the euro and yen (inverted).

Clearly, these currencies are under pressure from US interest rate policy, which is also reflected in bond yields. Quite why France’s 10-year OAT only yields 3.1% when France is in political turmoil and heading for a 7% budget deficit illustrates how far it is from reality. And as for Japan, with the 10-year JGB yielding only 1.09%, it’s hardly surprising that the yen is plunging.

Both these currencies and their debt markets are getting a nasty wake-up call, not just from the US Fed, but also global bond markets. The yield on the leading supposedly risk-free 10-year US Treasury Note is rising as I have recently forecast: