Last week, the UK government announced a massive tax cut plan, which led to a loss of confidence in UK assets and an epic sell-off in gilts, leaving pension funds facing unprecedented margin calls and the need to sell bonds aggressively in exchange for cash. and that could trigger a full-blown bond market crash. The storm was temporarily calmed down when the Bank of England announced its "unlimited" bond-buying program.

In fact, while UK bonds imploded, US bond yields were moving in the same direction. Yields on 10-year UK government bonds have risen 80 basis points since last Thursday, reaching as high as 4.6 per cent this week, up 30 basis points, and hitting 4.0 per cent on Wednesday morning, the highest since 2008.

In response, Wall Street warned in unison that the low interest rate environment created by the Federal Reserve for a long time has laid a hidden danger for the "fragility" of the current market. As the Fed continues to tighten policy rapidly, the surge in the dollar could trigger a financial tsunami, the surge in Treasury yields disrupts the US financial system, and market participants who use highly leveraged investments are at great risk.

"the Fed is destroying something," said Benjamin Dunn, president of Alpha Theory Advisors, an investment firm. "you really don't have any history of what's happening in the market today. We see multiple fluctuations in the Swedish krona, national debt, oil, silver and so on, as if we can see it every other day. None of these are healthy changes. "

Wall Street concluded that the problems created by the Fed should be solved by the Fed itself and that the bank should suspend quantitative tightening (QT) or even raise interest rates.

In March, the Fed began its most aggressive cycle of raising interest rates since the 1980s, raising rates five times in a row by September, with a cumulative increase of 300 basis points. In addition, since June, the Fed has launched the QT process, maintaining a contraction of $47.5 billion a month and increasing it to $95 billion after September. At present, it still has a balance sheet of $8.87 trillion.

The safest investment vehicles are no longer safe.

Mark Connors, a former head of global risk consulting at Credit Suisse, said that the fixed collection was supposed to be the safest investment vehicle in the world, and that increased volatility would certainly disrupt the financial system.

He said that as US Treasuries are fully trusted by the US government and supported by Xiaobai Maimai Inc and act as collateral in the overnight financing market, the surge in yields may affect the smooth operation of the market.

Connor representsThe surge in Treasury yields could force the Fed to stop its quantitative tightening program ahead of time, just like the Bank of England did.. He said that while this may confuse the market with the Fed's attitude towards inflation,The Fed has no choice.

In Bank of America Corporation's view, as the pressure on the US bond market approaches the tipping point, if the Federal Reserve does not adjust its policy, the risk of bond market failure will increase, and the situation will become uncontrollable. At that time, the United States will be the next Britain.

The bank believes that it is time to attach importance to risk management. The Fed should slow the pace of rate hikes at its November meeting and then suspend them, giving the economy time to fully adapt to "all extreme tightening policies".

Hidden dangers buried in low interest rate environment collapse of highly leveraged trading under continuous interest rate hikes

According to the analysis, the low interest rate environment created by the Federal Reserve for a long time has laid a hidden danger for the "fragility" of the current market, which is gradually highlighted and brings risks to the market with the continuous increase of interest rates.

Before the 2008 financial crisis, investors were betting on currencies on a massive scale, according to Dunn. This is because many arbitrageurs borrow at low interest rates and reinvest in high-yielding instruments, but the carry trade is highly leveraged, so investors often lose money. Dunn says:

All the actions of the Fed and (other) central banks are creating the backdrop for the unwinding of the current sizeable carry trade.

Connor said the market was hit hard by the Fed's continued rate hikes, exposing the weaknesses of market participants such as asset managers and hedge funds that use risky tools such as high leverage. Meanwhile,Margin call and forced liquidation may further disrupt the market。

Tim Wessel, a strategist at Deutsche Bank, said that the so-called "zombie companies" have been scraping by because of the low interest rate environment over the past 15 years, and that the Fed's continued interest rate hike has increased its debt pressure and may face default and "liquidation."

Wessel believes the Fed may need to stop its QT program. 'This could happen if financing rates soar and banks cut reserves too much to meet regulatory requirements,'he said.

A surge in the dollar could exacerbate the sell-off in US debt

The surge in the dollar could make it difficult for other countries to repay dollar-denominated debt or put pressure on emerging markets already struggling with inflation. In order to defend the local currencyOther countries are likely to sell Treasuries, raising the risk of an upside in yields.

According to the previous article on Wall Street, Michael Wilson, chief US securities strategist for Morgan Stanley, who is a big bear on Wall Street, warned that the surge in the US dollar has created an unsustainable situation for risky assets such as the stock market, or caused a new financial or economic crisis.

Connor came to a similar conclusion, saying:

A surge in the dollar could trigger a tsunami. When the dollar destroys one area, it is hard for others to be left alone; there is a chain reaction.