Current Mechanics playing out in US and Global MarketsCBOT:ZN1!
COMEX:GC1!
CME:6E1!
CME:6J1!
US Bond Market:
The US bond market—specifically US 10-year Notes—has long been considered a safe haven amid market turmoil. Historically, during periods of uncertainty, investors have flocked to these “flight to safety” assets, resulting in increased demand for US 10-year notes. Mortgage rates also tend to track 10-year note yields, meaning rising yields typically imply rising mortgage rates.
From the chart above, we can observe that ZN futures rose by 6.62% from the January 13 lows to the April 7 highs and what the next possible worst case scenario looks like.
Euro FX Futures:
Euro FX futures rebounded strongly from near-parity levels, climbing to a high of 1.15175—a substantial 12.27% increase versus the USD.
Gold:
Gold futures surged 21.84% from the January 6 lows to the April 11 highs.
What caused investors and market participants to abandon the US dollar and US 10-year notes?
As previously explained, broader macroeconomic forces are at play. Investors are not just pricing in a US recession—they're also reacting to an emerging supply-demand imbalance in the US bond markets. This imbalance is driving safety inflows into gold and other alternative assets, while simultaneously pushing yields higher on the long end of the US yield curve. As a result, the yield curve is steepening.
One noteworthy point: when the 10-year to 2-year yield spread falls below zero, a recession typically follows within 12 to 18 months. After a prolonged period of a negative yield spread during 2024, the yield curve has now steepened sharply.
Additionally, a recent 20% correction in US equities adds another layer of complexity to an already fragile economic outlook. Since the onset of the trade war, both uncertainty and volatility have escalated to extreme levels.
With inflation expectations rising and growth forecasts being revised downward, the most compelling asset class to watch in the coming months is the US dollar—and, specifically, the evolving status of the US 10-year T-Note as a risk haven.
Rising yields may point to further steepening of the yield curve and signal a broader shift away from the US as the global economic leader.
What’s truly at stake is the USD’s reserve currency status. How this unfolds remains anyone’s guess.
