The Era of Low Interest Rates Is Over

There will undoubtedly be plenty written about the last decade and longer, during which interest rates were lowered and held at levels last seen decades, if not centuries ago.

Markets are increasingly wary of major central banks, particularly the world's most powerful, who are planning to front-load interest rate rises in order to contain the inflation genie that has been let out of the bottle in order to restore rates back to neutral as fast as possible.

This morning, the widely followed US 10-year Treasury yield climbed to fresh cycle highs at 2.83 percent. Surprisingly, higher real rates and inflation expectations were almost equally responsible for the rise. The latter indicates that the market believes there is still opportunity for the Fed to accelerate its rate of tightening.

Red hot US inflation incoming

The March CPI announcement in the United States takes center stage today.

The headline figure is predicted to rise by 1.2 percent month over month and 8.4 percent year over year. The core measure, which excludes the volatile food and energy sectors, is expected to increase by 0.5 percent month over month and 6.6 percent year over year. With the persistently high rate of monthly price hikes supporting the Fed's red alert inflation mode, all of these measurements will be new multi-decade highs.

This suggests that a substantial pullback in the current yield upswing is unlikely very soon. Even European bonds have fallen in value, with rates recently breaching critical levels ahead of the ECB meeting on Thursday. Yesterday, the 10-year German government bond touched its highest yield since 2015, at 0.78 percent. This was remained negative as of early March, demonstrating the bond markets' recent seismic shifts.

USD in pole position, stocks suffering

The sudden increase in rates, along with persistent geopolitical tensions and growing uncertainties about growth, caused stock markets to become more risk-averse.

The Nasdaq, which is heavily weighted in technology, has down more than 2%, with futures pointing to additional losses today.

This week, many large US banks report profits, kicking off the earnings season in earnest. Overall bank revenues are expected to decline by 10%, with investment banking fees falling by 26%, according to analysts.

Meanwhile, the King Dollar is benefiting from its safe-haven reputation as interest rates rise. The DXY broke beyond the 100-point barrier earlier today, as the euro struggled to hold on to its gains after the first round of voting in the French presidential election.

The USD/JPY, however, has been the FX pair most influenced by the long-end adjustment in bonds. Even the Japanese authorities' uncommon jawboning this morning hasn't deterred the persistent bidders in this major.

Most experienced traders believe that no real intervention will begin until 130, with the June 2015 high at 125.85 serving as the next resistance level to be overcome.