Treasury Intervention Lifts Yen, Raises Red Flags for Stocks

The US Treasury Secretary Scott Bessent has intervened in the foreign exchange market to prop up Japan's Yen, which had fallen to a 40-year low. This is the first time since 1998 that such an intervention has occurred.

The move aims to benefit the US domestic long-term debt, particularly the 30-year Treasury bond (TLT), whose yield rose past 5.2%. Historically, yields above 5% have led to sharp falls in bond prices.

However, the impact of this intervention on the stock market is yet to be seen. The US government's recent employment report showed a 23,000 drop in jobs, but bond yields barely reacted, as it was realized that the decline was largely due to temporary job losses related to hosting FIFA games in the US.

The AI hyperscaler stocks, led by Microsoft (MSFT), have seen a strong rally, with Amazon (AMZN) and Alphabet (GOOG) also benefiting. However, this surge may be short-lived, as rising bond yields and weak demand for AI chatbots pose headwinds for the stock market.