Full-Spectrum Collapse? Top Bank Rings Alarm Over ‘Simultaneous' Fall Of US Assets - Invesco QQQ Trust, Series 1 (NASDAQ:QQQ), SPDR S&P 500 (ARCA:SPY)

With U.S. equities, treasuries, and the dollar all falling in tandem over the past week, analysts at Deutsche Bank AG have raised an alarm, calling it “uncharted territory.”

What Happened: On Wednesday, Deutsche analysts led by George Saravelos published a note flagging what the bank sees as a full spectrum sell-off, saying “We are witnessing a simultaneous collapse in the price of all U.S. assets including equities, the dollar versus alternative reserve FX and the bond market,” reported Investing.com

In a typical crisis environment, markets hoard U.S. dollar liquidity to pay for the underlying U.S. asset base in case prices drop too much. This time, however, things are very different according to the German banking giant.

Deutsche analysts say that “instead of closing the asset-liability mismatch by hoarding dollar liquidity, it [the market] is actively selling down the U.S. assets themselves,” something they attribute to the markets having “lost faith in U.S. assets.”

The bank points the finger squarely at the current U.S. administration, which it says is encouraging the Treasury sell off in its bid to bring down U.S. asset valuations.

Deutsche says that the policy objective of the administration, which is to reduce trade imbalance, will lead to lower demand for U.S. assets at the same time.

Saravelos ends with a stark warning that following this week’s escalation of the trade war with China, with tariffs already going past 100%, there is little room for more on the trade front.

This means that the next phase is an “outright financial war,” on which he notes that “there can be no winner to such a war” with the global economy poised to lose.

Why It Matters: There has been a lot of chatter on the puzzling rise in yields as the markets witnessed a rout over the past week. While this was initially attributed to China dumping its U.S. Treasury holdings, it was soon revealed that the real culprit was the unwinding of the Treasury basis trade.

With U.S. Treasuries no longer the haven they once were, investors are running to gold once again, prompting the yellow metal to soar past $3,200 on Friday, along with several mining stocks that rallied amid turmoil in the broader market.

Price Action: While the SPDR S&P 500 ETF SPY and the Invesco QQQ ETF QQQ are down 7% and 6%, respectively, the US 3 Year, 10 Year, and 30 Year Treasury yields are up by 5, 31, and 43 basis points, respectively, so far this month.

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