Erratic Bond Yields, Lockdowns, and War — 3 Reasons Why Economic Recovery Won't Happen Quickly

The global economy looks bleak as inflation continues to rise, and a wide array of financial investments continue to shudder in value. Since May 2, 2022, the crypto economy has dropped more than 15% from $1.83 trillion to today’s $1.54 trillion. The price of gold has lost 5% in 30 days, and major stock market indexes have seen record lows during the past two weeks. While many people hope the world’s financial markets will see a turnaround, there are three major obstacles impeding the path to recovery.

3 Factors That Will Impede the Global Economy’s Healing Process

While many people are surprised by the economy floundering, a great number of individuals predicted the economic downfall following the stimulus measures leveraged to fight Covid-19. Presently, global markets are looking awful, as equities are falling in value, precious metals have slipped over the last month, and crypto markets have been a bloodbath during the past 30 days as well.

On Monday, May 9, 2022, it was a day many investors won’t forget as the Nasdaq index slid by 4%, gold dropped by 2%, crude oil slipped by 7%, and the crypto economy shed 8% over the last 24 hours. Currently, there are three major reasons why the economy may continue to flounder until things start to change. The reasons include the ongoing war in Europe, the current Covid-19 outbreak in China, and U.S. bond market yields.

The Ukraine-Russia war

The first is simple to understand, war is not good for the economy except for firms like Raytheon, Lockheed, Northrop, and General Dynamics. While a great majority of stocks have plummeted, six-month statistics show the aforementioned company stocks have seen significant gains.

For the rest of the ordinary citizens, war is leading to more inflation. Significant financial sanctions against Russia have made it so many countries will not transact with the country. This has caused the tightest financial sanctions in decades which in turn has caused the price of goods and services and especially petroleum products to skyrocket.

Trends forecaster Gerald Celente recently detailed that as long as the Ukraine-Russia war ensues, the “odds of recession increase.” Many other forecasters and financial analysts believe that as long as the war continues, the “U.S. economy will slow, and Europe risks a recession.”

China’s ‘Zero-Covid-19’ Strategy

Another factor that may impede the global economy’s healing progress is China’s recent Covid-19 lockdown measures. During the past two months, China’s authorities have tested a two-phase lockdown in Shanghai with its strict “zero-Covid-19” strategy. The measures China has been leveraging in recent times have shaken investors, according to various reports.

Five days ago, the New York Times wrote that China’s Covid-19 policies are making it so European investors are wary of investing there. The NYT highlights a survey that says “lockdowns and supply chain issues have soured European businesses in China on the idea of further investment in the country.”

China’s lockdowns and the “zero-Covid-19” strategy have investors shaking in their boots because of what happened in 2020. When China was dealing with Covid-19 in early 2020, many believe the country’s lockdown tactics spread across the world causing a great number of countries to shut down their economies. Investors today are likely frightened that this could happen again and China’s “zero-Covid-19” strategy will spread to other regions worldwide. In turn, an event like this could once again shut down global markets, impede supply chains, and cause economic chaos.

Erratic Bond Markets

The final problem that is hurting financial investors is current bond market yields are wild and erratic these days. On May 10, reports show that the 10-year U.S. Treasury yield slipped by 3% on Tuesday, “as fears of rising inflation and a potential economic slowdown lingered.” In addition to U.S. bond market carnage, bonds in Europe have been extremely volatile as well.

The reason people fear bond market volatility is because bonds are generational investment vehicles with long-term yields that affect fixed-income investors. Bond markets have been tanking for weeks on end and many believe the economy won’t heal unless bond markets stabilize. The broken bond markets are also being blamed on the Ukraine-Russia war but they were showing signs of weakness well before the conflict.

Moreover, younger generations of bond investors have not felt volatility like this before. The director of global macro at Fidelity Investments, Jurrien Timmer, says the current bond bear market is “historic.” In the same report, JPMorgan Asset Management’s chief investment officer, Steve Lear, said the broken bond market is painful. “It’s been a real and significant and painful move,” Lear said. “For those who haven’t experienced a bond bear market, this is what it feels like.”

These three factors are sores on the global economy and unless they heal, an even deeper recession could be in the cards. Presently, the Ukraine-Russia war continues, China’s lockdown measures are still shaking investors, and bond markets have been erratic for weeks on end and continue to rattle investors to this very day.