Change in Interest rates effect economy more than change in any other asset class .Macromon has written a must read post on that Giant sucking sound of US treasury crowding out emerging market capital flows.
We hope you take the time to give it a thorough read. We think it important and will soon be at the center of the market’s radar.
Summary
Our analysis provides kind of a Grand Unified Theory (GUT) of what is currently taking place in global financial markets
The massive borrowing by the U.S. Treasury is crowding out emerging market capital flows
The structural factors that have kept long-term interest rates low and term premia repressed are fading
The U.S. budget deficit is exploding
The Treasury has to increase its market borrowing as the Fed rolls off its SOMA Treasury portfolio
Social security has moved into deficit and borrowing from its trust funds to finance the on-budget deficits is over
Globalization is under threat, and foreign capital flows into the U.S., particularly the Treasury market, are declining
The yield curve is flat for technical reasons, and we believe term premia will increase
We expect a measured move in the 10-year Treasury yield to 4.25 to 4.40 percent, much sooner than the Street anticipates
Crowding out in the emerging markets will continue
https://macromon.wordpress.com/2018/09/24/the-gathering-storm-in-the-treasury-market-2-0/