'Extremely dangerous': Economist magazine sounds alarm about new market 'convulsions'
The Economist magazine on Wednesday sounded an alarm about a new trend in bond markets that was also flagged earlier in the day by economist Larry Summers as being particularly worrisome.
Like Summers, The Economist identified a spike in the value of ten-year American Treasury bonds as a portending a potential crisis, as it may signal that investors no longer see U.S. bonds as safe havens during times of economic distress.
The magazine then explained why these market "convulsions" appear "extremely dangerous."
"It is the most worrying sign of financial distress yet -- and there have been plenty," the magazine warns. "Traders are paying soaring premiums to protect themselves against volatility, businesses are facing increasingly bad terms on borrowing and a dash for cash has sent the gold price down. Spiking Treasury yields are even more ominous, since they drag up other borrowing costs with them. In short, they are not just a symptom of market stress -- they are a cause of more to come."
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While the United States has weathered financial crises in the past, writes the magazine, that was back when the world saw America as a refuge from, rather than an epicenter of, economic chaos.
"More worryingly, on a fundamental level, Mr. Trump’s assault on global trade has dented confidence in American policymaking," the magazine contends. "It is only natural for investors to conclude that the country’s sovereign debt has become less safe. Similar jitters apply to its currency... Sure enough it has weakened amid the market turbulence. These are nervous times for investors, policymakers and just about every American."
