If you thought that many stocks have been in a dire position since last summer, then you haven’t looked at government bonds yet. The upward trend for US government bonds is far from visible. According to Bank of America, it is the deepest bear market in history. This could also be negative for other assets, such as cryptocurrencies.
BoA bearish on US government bonds
The investment bank concluded this on Friday in a weekly letter to investors Reuters. The latest edition of the ‘Flow Show’ letter states that bond-specific investment funds saw $2.5 billion exit last week. Furthermore, BoA only measured from last Monday to Wednesday, meaning the actual amount may be even greater.
Things are particularly bad for long-term government bonds, which are most affected by interest rate rises. Last Wednesday, yields on 30-year US government bonds rose above 5% for the first time since 2007. The value of bonds is inversely correlated with interest rates, and last week these specific assets also fell 5%.
At the same time, ‘2-year Treasury bonds’, which are also formally called ‘notes’, were doing reasonably well. The price of these bonds remained virtually flat. This could be due to growing concerns that the United States is slowly entering a recession. The higher interest rates implemented by the central bank theoretically slow down the economy.
Furthermore, the fact that the United States has difficulty paying its own debt will play an important role. The government even threatened to temporarily close non-essential government services last month.
Bad news: bonds bad for crypto?
The investment bank also considers the chance of a recession, but remains bearish. “No capitulation here,” warns BoA strategist Michael Hartnett. He calls bonds the new ‘humiliation trade’. Some say the panic is actually good for other assets, but Bank of America doesn’t think so. It sees the rise in American shares as a favorable selling moment.
In general, stocks and cryptocurrencies are positively correlated. That means crypto rises when stocks rise and falls when stocks do too. Ironically, just the opposite happened last week. The bond panic was already there then, but bitcoin (BTC) actually benefited from the unrest, according to market data.
2023-10-07 17:02:12
#Cracks #bond #market #bitcoin
