Global Markets Plummet as Geopolitics and Bonds Weigh on Risk Assets

The global economy is facing a triple threat of rising geopolitical tensions, a faltering bond market, and a hawkish Federal Reserve, all of which are contributing to the current 'risk-off' rotation. Bitcoin's price has fallen below $66,000 as investors seek safe-haven assets amidst uncertainty.

Maritime tensions in the Middle East have escalated, with Iran maintaining its blockade of the Strait of Hormuz and the US military campaign to reopen the strait showing no signs of de-escalation. This has led to a surge in global energy prices, threatening supplies and driving investors out of risk-on assets like Bitcoin.

The bond market is also experiencing a crisis, with yields on sovereign debt rising to levels not seen in decades. Japan's 10-year bond yield hit 2.38%, its highest level since 1999, while the US Treasury volatility index surged to 115.02. Inflation expectations are soaring, forcing bond yields up and pressuring growth stocks and cryptocurrencies.

The Federal Reserve's shift towards a hawkish stance has also drained liquidity from risk assets. The probability of a rate hike in 2026 has surged to 48.6%, according to the CME FedWatch Tool, while investors are bracing for extreme instability in the bond market.