US Dollar & VIX Spike, Nasdaq Slammed As Treasury Yields Surge

Market volatility is accelerating quickly on Thursday led by another sharp selloff of Treasury bonds. The 10-year Treasury yield just exploded past 1.5% and is causing a ripple effect across asset classes. One large reason for this is that the rate of return on US Treasuries now exceeds the estimated dividend yield on the S&P 500 Index.

Following poor 7-year auction results today, Treasury yields extended their push higher on the heels of a 4.4bps tail. This means that buyers of US Treasury bonds were only willing to pay a much lower price than the average price. Alongside this, indirect (foreign buyers) had plummeted to 31.8%, which compares to 64.1% at the prior auction.

EUR/USD PRICE CHART WITH TEN-YEAR TREASURY YIELD OVERLAID: 15-MINUTE TIME FRAME (25 FEB 2021 INTRADAY)

eurusd price chart us dollar with treasury yield overlaid

The US Dollar is whipsawing higher in turn as USD price action strengthens aggressively across the board. EUR/USD has plummeted over 80-pips from intraday highs and completely erased gains from earlier in the session. GBP/USD and AUD/USD have both been hemorrhaging as well with the Pound and Aussie down 110-pips and 76-pips respectively against the US Dollar.

US DOLLAR PERFORMANCE AGAINST EMERGING MARKET CURRENCIES (25 FEB 2021 INTRADAY)

US Dollar price chart performance versus EM FX Emerging Market Currencies USDZAR USDTRY USDMXN

Top emerging market currencies like the South African Rand, Turkish Lira, and Mexican Peso have been hit particularly hard owing to the latest influx of US Dollar demand as Treasury yields surge. As the bond sell-off grew more aggressive it prompted risk sentiment to deteriorate even further, and correspondingly, EM FX extended their losses with the South African Rand the worst performer down over 3%.

NASDAQ PRICE CHART WITH VIX INDEX OVERLAID: 5-MINUTE TIME FRAME (25 FEB 2021 INTRADAY)

Nasdaq price chart with VIX Index Overlaid

With stock price valuations coming under intensifying scrutiny due to higher Treasury yields, the tech-heavy Nasdaq has underperformed other major equity indices like the Dow or S&P 500. The pullback in stocks has also corresponded with a sharply higher VIX Index, or fear-gauge, as investors seek downside protection. Precious metals like gold and silver have also faced considerable selling pressure amid rising yields.

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