US Finance Market Threatens New Global Crisis

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While investors are worried about rising yields on US Treasuries, Wall Street has been closing lower. Russian analyst Natalia Dembinskaya has explained why this trend could affect the global financial market and spark a new crisis.

As things stand, the yield on US Treasuries has hit its highest level since 2008, exceeding three per cent. According to Morgan Stanley Bank analysts, if the US 10-year yield on US debt exceeds 3.05%, collapse will occur.

When the Federal Reserve increases interest rates or other restrictive monetary policy measures, there is a decrease in “cheap money” in the financial system, which means that investors are less likely to invest in securities of the Treasury.

The 10-year US Treasury yields rate is a kind of index for the global financial market, the basis for the price of sovereign debt securities of other countries. If its profitability is increasing, its price falls (and vice versa) and market participants anticipate higher interest rates from central banks, Dembinskaya explained.

Rising interest rates mean higher borrowing costs for businesses and as a consequence they make less investment, shareholders receive less profits, and financial markets become less attractive.

When the yield on US Treasuries exceeds three percent, market participants understand that this will lead to higher interest rates.

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“This, in turn, causes fears about the future market collapse, fears the crisis is just around the corner,” billionaire investor Jeffrey Gundlach says.

Experts have different opinions as to when the crisis can begin. For example, analysts at JP Morgan Asset Management say that a crisis in 2018 is “unlikely.”

“However, the increase in the yield on treasury bonds affects the stock market, that is, if there is a drop in the main stock indexes, which for specialists are the key factors that can lead to collapse,” Dembinskaya said.

Another factor threatening economic crisis is the US’ protectionist policy. Protectionism has a negative effect on the prices and accessibility of North American and Chinese goods, which in turn will lead to a fall in trade, thus damaging the global economy.

The constant threat of crises provoked by the American economy is indicative of the need for other countries to pursue sovereign financial and economic development outside of, or in cautious balancing with, the US’ hegemonic system.

Dembinskaya comments on Russia’s situation in this respect: “Over the four years of sanctions from the US and EU, the country’s economy has tempered well.” But this is not all, according to Dembinskaya: “The country [Russia] has not only successfully coped with the collapse of oil prices and Western sanctions, but has also prepared for possible cataclysms in the world economy.” 

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