Alright, folks, let’s talk straight. CICC just dropped a report that should be sending shivers down the spines of anyone with skin in the US market. We’re seeing a worrying chill in both US and Japanese bond auctions, alongside rising interest rates – a clear sign global liquidity is tightening up fast.
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But here’s the kicker: the yen. Its liquidity issues aren’t staying contained. It’s actively amplifying the risks, potentially accelerating a devastating ‘triple whammy’ across US stocks, bonds, and the dollar. This isn’t just technical mumbo-jumbo, it’s a real threat.
Think of the yen as a key funding currency. When it’s stressed, the impact ripples outwards. And trust me, this ripple is getting bigger.
Now, add to this cocktail the impending tsunami of new US debt. With Trump’s ‘beautiful bill’ likely to pass, the Treasury is poised to unleash a flood of new bonds between July and September. This is where it gets truly ugly. The system will be flooded with debt and liquidity will be squeezed even harder.
Let’s break down what’s happening here, and why you should care:
Global Liquidity Tightening: Central banks are slowly reducing the amount of money circulating in the system. This impacts asset prices globally.
The Yen’s Role: The yen is often used to ‘fund’ investments worldwide. A weak or illiquid yen makes those investments riskier.
US Debt Overhang: The US government needs to borrow trillions of dollars. A sudden surge in supply can overwhelm the market, driving down prices and increasing yields.
This creates a vicious cycle: falling asset prices (stocks and bonds) force margin calls, requiring even more liquidity. The Fed will be under immense pressure to restart quantitative easing (QE) – essentially printing money – just to keep the market from imploding. The clock is ticking. Don’t say I didn’t warn you. It’s time to seriously reconsider your portfolio positioning.
