This market is hard to wrap one’s head around

This market is hard to wrap one’s head around, but if there is one asset that threads it all together, it is the DOLLAR.

? The changing relationship between the dollar (white) and long yields (blue), and their interaction with other assets, points to a typical US term premium shock - investors demanding more compensation to hold dollar assets - this underpins the volatile market ytd and influences currency hedging behavior. In the near term, Fed nomination could ease that shock and support the dollar.

? Beyond the immediate horizon, there is an IMMUTABLE LAW that cannot be broken: higher term premia and long yields eventually collide with debt servicing costs, and that constraint has been effective in influencing policy direction.

? Meanwhile the dollar is the pressure valve: tightening financial conditions, amplifying cross-sectional dispersion, and acting as the transmission mechanism between rates, risk, and relative performance.