Global Bond Rout Puts the ASX on the Edge

The worldwide sell-off in bonds is accelerating.

Charlie and I have been keeping tabs on the moves for you over the past few weeks. It looks like the sell-off still has further to run.

Last night, the US 10-year Treasury yield jumped around 14 basis points to roughly 5.13%, its highest level since 2007. The immediate catalyst was much stronger-than-expected US economic data.

The S&P Global composite PMI surged to 58.4, the strongest reading since July 2021, reinforcing fears that the economy remains too hot for inflation to cool comfortably and that interest rates may have to stay higher for longer.

Adding fuel to the fire was a near-4 % rebound in oil prices amid renewed US-Iran tensions, reviving concerns about another inflationary impulse from energy. 

Weak demand at Treasury auctions then accelerated the move, highlighting a deeper problem facing bond markets. Governments are issuing enormous amounts of debt at the same time corporations are borrowing heavily to fund the AI investment boom, forcing both to compete for a finite pool of global capital.

In short, the bond market is increasingly questioning whether inflation, strong growth and huge borrowing requirements mean that long-term interest rates need to settle materially higher than investors had become accustomed to.

The S&P/ASX 200 [ASX:XJO] is now resting on major support. If it gives way, we are facing another leg lower in prices.

Commonwealth Bank of Australia [ASX:CBA] has flipped into a long-term downtrend and is currently testing levels below $150. There is a rising chance we are about to see it fall rapidly towards $120.

If the financials come under serious selling pressure due to rising rates and a weakening residential property market, the ASX 200 will struggle to rally.

The weekly trend is about to turn down, and the ASX 200 is resting on the 20-month moving average. Another bad week, and things will look nasty in the short term.

As long as 8,260 holds, which is 5% below current levels, we should be fine. But below 8,260, another 560-point fall is on the cards.

So there are some dominoes lined up beneath the market that we need to keep an eye on.

Thankfully, US stocks are bulletproof, so hopefully a continued rally there can ease the pain for Aussie investors.

Charlie and I discuss the synchronised rate tightening around the world and its ramifications for stocks. We also dive into an analysis of the ASX 200 now that it is resting on the precipice.

Closing Bell