David Morrison’s Market Warning On India Outflows, Yen Carry Trade As US & Japan Bond Yields Spike

The Federal Reserve faces a pivotal interest rate decision as market expectations shift toward a 25 basis point hike following recent PPI and CPI inflation data. David Morrison, Senior Market Analyst at Trade Nation, notes that while the CME FedWatch tool indicates a 94% probability of an increase, the leadership of Kevin Warsh introduces significant uncertainty due to his preference for market-led movements over forward guidance. This potential policy shift coincides with U.S. 10-year Treasury yields hitting their highest levels since 2007, surpassing 5%. These rising yields are compressing the spread with emerging markets like India and attracting Japanese investors back to domestic bonds as 10-year JGB yields exceed 3%. A failure by the Fed to raise rates, contrasted with an expected hike from the Bank of Japan, could trigger a rapid unwind of the yen carry trade and disrupt global capital flows.