Israeli Investment House Warns of Spreading Bond Market Turmoil

The Israeli investment house Meitav is warning that global financial markets are facing complex and deceptive conditions, despite seemingly positive economic data in the United States. Chief Economist Alex Zabezhinsky stated that the apparent improvement in U.S. private consumption is temporary, citing a weakening labor market, rising financing costs, and declining real household income relative to expenses. Inflation remains stable, even showing signs of moderation, which has led to a sharp drop in market expectations for a Federal Reserve interest rate hike in October, from 70% to just 20%.

Meitav's primary concern, however, lies with the bond market, which they say is "disconnecting from economic data." Long-term yields are reportedly soaring independently of monetary expectations, reflecting a surge in risk premiums and a flight of traditional investors. This pressure is already impacting stock indices and tightening financial conditions.

The firm argues that the apparent stability in major U.S. stock indices is an illusion, propped up by a small number of AI-related stocks. Beneath the surface, weakness is widespread, with fewer than 45% of S&P 500 stocks recently advancing, a level not seen since 2000. The situation in Europe is also grim, with bond market instability raising concerns about the Eurozone's financial stability, prompting speculation about potential future intervention by the European Central Bank.