For months, investors had shrugged off the threat of rising interest rates. That changed this week.
It’s a wake-up call not just for investors, who have until now largely shrugged off the rapid rise in interest rates, but also for banks, which are vulnerable to a sharp selloff in government bonds. Major developed economies alone have lifted rates by more than 3,000 basis points in this tightening cycle, the fastest pace since the 1980s in a bid to tame prices.
Demand for U.S. dollars in the currency derivative markets meanwhile surged on Friday, another sign of stress trickling through the system. Regulators have said U.S. banks had unrealized losses of more than US$620 billion on securities, underscoring the scale of the risks. U.S. benchmark 10-year yields surged by more than 200 basis points last year and almost 40 bps in February alone on renewed rate-hike bets.