Expect global yields to march higher for the foreseeable future. The Fed would need to pause its rate hikes to stop yields from climbing.

• The Fed will continue to raise the Fed Funds rate, thereby pushing yields higher along the yield curve.

• We are in the midst of a global recession that is likely to get worse. Europe and Asia are feeling the recession to a much greater degree than the United States.
  • Holders of foreign sovereign debt are likely to continue to rotate out of those holdings, pushing sovereign debt prices down and yields up. Proceeds from this selling activity will find its way to various investments, including currency. U.S. Dollars are favorable to most currencies including the Pound and the Euro. Expect the Dollar to climb higher, which will further pressure European economies.
  • Some of the sovereign debt proceeds will find their way into U.S. Treasuries, pushing prices higher and yields lower, but this will only slow the upward pressure that QT will have on yields, not enough to completely offset the Fed’s Balance Sheet reduction activity / QT.

• In short, the global money supply is shrinking, asset values are declining (and have much further to fall given the bubble valuations of 2021), and the cost of capital (yield) is increasing.

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