“Free” money is getting more expensive

GBP/JPY

Key zone: 216.00 - 217.00

Buy: 217.20 (on a confident breakout above 217.00); target 219.00; StopLoss 216.50

Sell: 215.50 (on strong negative fundamentals); target 214.00-213.50; StopLoss 216.20

The bond market is sending a warning signal: the cost of money is rising simultaneously in the U.S., Japan, Europe, and Australia. Investors are demanding an increasingly higher premium for debt, while central banks are facing a new inflationary challenge due to the energy shock.

The main risk for traders is no longer the Treasury sell-off itself. The danger emerges when rising yields begin to simultaneously pressure stocks, currencies, and financing costs.

A reminder:

The Middle East crisis is intensifying this process: expensive energy is pushing inflation expectations higher, while governments have to borrow more to finance rising expenditures. The bond market is already warning that several of the world’s largest debt markets are under severe pressure at the same time.

As a result, the market demands even higher yields — triggering a self-reinforcing cycle:

oil up → inflation expectations up → rates higher → bonds down → cost of capital higher → stocks down → fiscal risks higher → government debt premium even higher.

• 10-year Treasuries reached a nearly three-year high in yield — 4.81%. A break above 5% would no longer be just a technical event, but a serious stress test for the stock market.
• 10-year JGB yields rose above 3%, reaching their highest level in roughly 30 years.
• The yield on 10-year Australian bonds rose to 5.198% — the highest level in more than 15 years.
• German Bund futures fell 0.35%, reaching their lowest level since 2011.
• French OATs fell 0.37%, also setting a new low.
• British bond yields reached their highest level since 2008.

Investors are simultaneously demanding higher yields across virtually the entire developed sovereign debt market. Washington tried to stop the sell-off — the market hit back.

Last month, Scott Bessent and the U.S. Treasury took measures to limit the rise in long-term Treasury yields. The result was telling: the market almost completely erased the effect of the intervention. The yield on 30-year Treasuries returned to the levels that initially forced Washington to respond.

Last month, Scott Bessent and the U.S. Treasury took measures to limit the rise in long-term Treasury yields. The result was telling: the market almost completely erased the effect of the intervention. The yield on 30-year Treasuries returned to the levels that initially forced Washington to respond.

AI is now also working against bonds: another source of supply is the largest technology companies.

This creates an unpleasant combination:

governments borrow more + Big Tech borrows more + investors demand higher yields.

This is nothing more than classic competition for capital. And the higher the yield on risk-free Treasuries, the harder it becomes to justify extreme valuations for companies whose main profits are expected several years from now.

What Should a Trader Do?

U.S. Treasuries — sellers have the advantage. A break above 5% in the 10-year Treasury yield would be a powerful signal that the sell-off is continuing and would increase pressure on risk assets.

USD — sell rallies, but not blindly. Aggressive USD shorts are more dangerous than selling on confirmed corrective rallies.

U.S. indices — selective buying only. NASDAQ is a high-risk zone.

Technology — do not buy simply because the market has fallen. If the cost of capital continues to rise, multiples will be revised downward.

Oil — buyers have the advantage during escalation. A rise in Brent above $95 becomes simultaneously a bullish factor for oil and a bearish factor for stocks and bonds.

Gold — wait for a reversal in yields. The best signal is a confirmed downward reversal in Treasury yields.

JPY — an extremely dangerous zone. Any unexpected strengthening of the yen could trigger cascading position closures in GBP/JPY, USD/JPY, and other carry pairs.

So, What Does This Mean?

The key market right now is neither stocks nor the dollar. The key market is bonds. Treasury yields determine the cost of capital for the entire financial system. As long as the 10-year yield is moving toward 5%, betting on a sustainable stock rally becomes increasingly dangerous.

Traders cannot look at assets in isolation right now. The working chain looks like this:

Treasury yields → dollar → stock indices → oil → inflation expectations → Fed.

If the yield breaks above 5%, the priority shifts toward capital protection and selling risk assets.

If yields reverse downward, the dollar loses support and pressure on stocks eases — creating grounds for returning to risk buying.

The key signal in the coming days: watch not where the S&P 500 is going, but where Treasury yields are going. As long as bonds are falling, any stock rally remains suspect.

So we act wisely and avoid unnecessary risks.

Profits to everyone!