Investors React To Bond Market Chaos Amid High-Interest Rates: 'This Is Clearly A Panic Attack'

Fears stirred by the Federal Reserve have triggered widespread panic among investors, leading to disorder in the bond market, according to Wall Street experts.

As reported by Business Insider, chaos has engulfed the U.S. government bond market over the past few weeks, with the 10-year US Treasury yield hitting a 16-year high.

This turbulence is largely a result of markets adjusting to persistently high-interest rates, a reality emphasized by Fed Chair Jerome Powell at the September FOMC meeting.

Concerns about growing US debt and looming recession also contribute to the unease, as well as a perceived lack of response from the Fed to the rising interest rates.

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“This is clearly a panic attack,” Market veteran Komal Sri-Kumar termed the bond selloff.

He attributed it to investors’ realization that the Fed was not reacting to the increased interest rates, leading to a rush to sell bonds.

Investors’ panic was evident as they hastily offloaded long-dated bonds following Powell’s speech at the last Fed policy meeting, said JPMorgan Asset Management’s Chief Investment Officer, Bob Michele.

Michele referred to the banking crisis triggered by the collapse of Silicon Valley Bank earlier this year, which initially sparked hopes of a pause in interest rate hikes by the Fed. However, these hopes were dashed as Powell and the Fed maintained their rate hike trajectory and suggested rates would remain high for an extended period.

However, Fundstrat’s Tom Lee opined that the rise in bond yields might be detached from some market fundamentals. He further added that rates are unlikely to remain high for long, given the cooling inflation indicators.

The yield on the 10-year US Treasury note traded around 4.719% on Thursday, its highest since 2007. Markets predict an 80% likelihood the Fed will keep rates unchanged at its November meeting, and almost a 97% chance of a rate cut by the end of next year, as per the CME FedWatch tool.

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