On June 20, the Fed’s hawkish remarks this week may suppress risk sentiment, stimulate safe-haven demand for the US dollar, and boost the panic index VIX.
At the same time, risk assets are facing another red flag, with the extra yield on buying investment-grade corporate bonds instead of U.S. Treasuries now at their lowest levels in about 30 years.
Things aren’t much better for stocks, with benchmark stocks now yielding less than the yield on three-month U.S. Treasuries, which could act as a powerful cap on gains.
Both the VIX index and the Bloomberg Dollar Spot Index fell into oversold territory after three straight weeks of declines. They are vulnerable to a quick reversal if risk sentiment sours.