[Definitive Guide] The Day Bonds, Currencies, and Stocks Are Sold Simultaneously: What Is Happening?｜もぐさんFX
Even though interest rates are rising, both currencies and stocks are being sold off together.
Have you ever seen such a day? In my previous article, I wrote that there are healthy reasons for interest rates to rise, and reasons that warrant caution. What we are dealing with this time is a state where that cautionary side has progressed one step further.
The suspicion of ‘Is it safe to lend?’ drives everything
Normally, if interest rates rise, the appeal of investing in that currency increases, and the currency is bought. However, there are days when the exact opposite happens.
The flow is as follows.
Anxiety arises regarding the country’s fiscal health
→ People begin to ask, ‘Is it safe to lend to this country?’
→ Government bonds are avoided
→ Government bonds, currencies, and stocks are sold simultaneously
At this time: Bond yields ↑ Currency ↓ Stocks ↓
The day when government bonds, currencies, and stocks all fall in value simultaneously is the day you should be most vigilant.
‘Would you lend more money to someone who has borrowed from everywhere and hasn’t paid it back?’—this is the true nature of this phenomenon. Since this is a move to reduce investment in that country itself, the currency is sold even though interest rates are rising.
The decisive difference from the previous discussion
Last time, I covered the pattern where interest rates rise as a result of neglecting inflation. That was a story about ‘the value of cash diminishing.’
This time, it is a deeper issue. It is a doubt about credit itself: ‘Will the borrower actually pay me back?’
Neglecting inflation is still a matter of central bank judgment. A doubt about credit is a doubt about the country itself. That is why stocks are sold off together as well. It becomes a state where not only the currency is weak, but everything related to that country is avoided.
If a currency is being sold even though interest rates are rising, it is not a matter of the economy, but a matter of credit.
If you remember this one sentence, you will be able to immediately answer the question, ‘Why are both stocks and currencies falling even though there are expectations of interest rate hikes?’
There are exceptions
There is one supplement to the story so far.
For some currencies, there is always a certain amount of buying demand for trade and settlement purposes. Even if selling pressure is applied due to fiscal anxiety, it may be offset by this structural buying and not appear on the surface.
Even with the same news of ‘fiscal anxiety,’ the way it manifests differs depending on the currency—please keep this in mind. Not all currencies react in the same way.
Summary
1. When government bonds, currencies, and stocks are sold off simultaneously, it is a question of questioning trust
When rising interest rates, currency depreciation, and falling stock prices occur at the same time, it is not a matter of the economy, but a matter of credit.
2. The suspicion of “is it safe to lend?” is the starting point
When anxiety about public finance arises, government bonds are avoided, and yields rise.
3. The reason currencies are also sold off is because trust itself is being questioned
This is a deeper doubt about the nation itself, beyond just the neglect of prices (a problem of central bank judgment).
4. Some currencies have structural buying demand
Even with the same news of fiscal instability, the reaction differs depending on the currency.
Conclusion
I think the day when interest rates are rising and currencies are also being sold off is a scene that many people overlook while “not really understanding it.”
However, there is a simple logic behind it. If it becomes doubtful whether money lent to someone will be returned, no one will want to get close to that party. That is simply appearing in government bonds, currencies, and stocks at the same time.
If you read this in conjunction with the previous article, the information you can glean from a single piece of news that “interest rates have risen” will become even deeper. Is it a healthy rate hike, a result of neglecting prices, or is trust itself being questioned—you will be able to distinguish the differences behind the same headlines in order.
For those who want to learn FX systematically from the basics, or who want to organize the connection between interest rates and exchange rates, I recommend taking a moment to organize the learning content you need for yourself. Just by determining the order, the way you see the news will change significantly.
Thank you for reading to the end.
※This article is educational content intended for learning FX. It does not instruct on trading decisions, nor does it recommend any specific method or timing. The market mechanisms described are general explanations and do not guarantee that they will apply in all situations. FX carries the risk of principal loss and loss, so please make investment decisions at your own responsibility.
