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Bond Market Recalls 2008 Crash

by Janine Lindsey

As the global financial landscape experiences significant shifts, experts are raising concerns about a potential crash similar to the 2008 financial crisis and the dot-com bubble burst. Renowned Chartered Financial Analyst (CFA), Genevieve Roch-Decter, recently highlighted the striking parallels between the bond market’s slump and the drops witnessed in stocks during these previous crises.

Bloomberg Surveillance’s Lisa Abramowicz further reinforces this grim narrative, stating that bonds maturing in 10 years or more have slumped 46%, just shy of the 49% plunge in US stocks after the dot-com bust. The decline in long-term treasuries, particularly those with maturities exceeding a decade, is reminiscent of market downturns like the dot-com bubble collapse.

The Federal Reserve’s stance on inflation and a fragile fiscal environment have disrupted the traditional appeal of long-maturity debt, leading to questions about the possibility of a debt spiral. Additionally, the behavior of the yield curve raises concerns, as a rare “bear steepener” has been observed, with rising long-term yields. Historically, such a phenomenon has foreshadowed economic downturns.

Barclays’ analyst Ajay Rajadhyaksha suggests that only a stock market crash could halt the bond market’s decline. Traditional bond backstops are diminishing, with the Fed shifting from a net buyer to a net seller, and foreign institutional buying slowing down. This highlights a disconnect between equity valuations and long-end bond rates, implying that stocks have significant room for devaluation before bonds stabilize.

The turmoil in the bond market has far-reaching implications, including its impact on Bitcoin and the broader crypto market. Rising treasury yields make risk-free returns more attractive, potentially leading some investors to reallocate capital from risk assets like Bitcoin and crypto to treasury bills. This shift in demand could put downward pressure on crypto prices. Moreover, higher yields signal a tighter monetary policy and higher borrowing costs, which can impact the crypto market.

Sharp increases in Treasury yields can also lead to reduced liquidity in other financial markets, including the crypto space. Institutional investors facing liquidity constraints may liquidate more liquid assets like Bitcoin and altcoins, causing potential price declines. In addition, rising yields can create volatility across various asset classes, influencing investor behavior and impacting crypto prices.

Given these factors, experts are warning that Bitcoin and crypto could be affected if a crash similar to 2008 occurs. Market sentiment and speculative behavior heavily influence the crypto market, and the interpretation of rising yields can sway investor behavior and impact crypto prices.

It is important for investors to closely monitor the bond market and its potential impact on the crypto market to make informed decisions and navigate these uncertain times effectively.

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