US bond market scare – What now

By Ryk de Klerk

In January I warned that the markets are vulnerable to any unpleasant surprises, and specifically the threat of rising inflation, and that inflation could overshoot on the upside.

The past week shocked many market players as long-term government bond yields soared in the US and elsewhere on Thursday with the US 10-year government bond index up by 16 basis points to 1.53 percent.

Emerging market equities as measured by the MSCI Emerging Market Index (US dollars) bore the brunt and ended the week down by 4.3 percent from its high on Wednesday while developed market equities (MSCI World Index in US dollars) succumbed by 2.4 percent.

Commodity-related currencies such as the Australian dollar and the South African rand lost 3.2 and 4.1 percent respectively against the greenback.