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It is a Bear Market


Credit spreads widened further with US HY (HYG) adding +10bps and all credit sectors affected, including in Europe. GE Perpetual floating rate bond shed 8% yesterday and rate hike expectations were repriced with half a rate hike taken off from expectations for next year (+1.4 rate hike still expected now). In FX, there was no flight into the safety of the dollar yesterday, nor in JPY with only CHF serving its safe haven role. In an interview to Barry Ritholz for his “Master in Business”, Ray Dalio repeated a recent claim that got a similar echo from BlackRock’s CEO Larry Fink, that the US dollar’s days as the dominant global reserve currency are numbered. He explained that widening deficits will soon alienate foreign buyers of Treasuries, sending yields higher while causing the dollar to depreciate by 30%. More generally, he opined that investors are “leveraged long” and that asset returns will be middling to negative for the foreseeable future. 

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