Mounting Financial Risks: Over-Leveraged US Banks, Surging Bond Yields, and Recession Warnings Raise Alarm Bells

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The current situation in the US financial landscape is a cause for concern. It has been known that the top 5 US banks are over-leveraged, which can be a recipe for disaster. Over-leveraging can make these banks vulnerable to financial downturns and economic shocks.

This vulnerability is further highlighted by the fact that companies are closing and factories are going bankrupt. These developments are likely to have a cascading effect on the economy, potentially triggering a recession.

One of the key indicators pointing towards economic uncertainty is the real yield on 10-year Treasuries. The fact that they are approaching 2% again, a level not seen since 2009, suggests borrowing cost is getting out of hand.

Moreover, Bloomberg has noted that the bond market has never sounded recession alarms for such an extended period. This prolonged period of uncertainty in the bond market is a concerning signal of potential economic instability.

Additionally, BofA strategist Michael Hartnett’s observation about money-market funds seeing $1 trillion of inflows year-to-date is significant. It indicates that investors are flocking to safer, more liquid assets, indicating a lack of conviction in the current market conditions and possibly foreshadowing a bear market.

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In summary, the over-leveraged state of top US banks, coupled with business closures and factory bankruptcies, rising Treasury yields, and the prolonged unease in the bond market, as well as the influx of funds into money-market accounts, all point to a potentially dire economic situation and heightened risk of a recession.

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