The stock market is facing challenges as bond yields rise, leading to a 0.5% drop in S&P 500 futures. European markets are also feeling the impact, with the DAX falling nearly 1% and the CAC 40 switching from gains to losses. In France, 30-year bond yields have crossed 4.50% for the first time since 2011, a trend also seen in the UK. Rising bond yields are making their way to Japan and the US, where the US yield curve is steepening. This situation poses difficulties for the stock market and suggests a potential correction ahead. At the same time, gold prices are falling as traders seek safety in the US dollar. Gold has decreased to $3,478 after earlier increases. With high and steepening yields, purchasing gold during dips could be a good long-term investment strategy. As the S&P 500 faces pressure from rising bond yields, we believe that stock prices may decline in the short term. The US 10-year Treasury yield reached 4.75% in August 2025, marking its highest level in over a decade. This indicates that increased borrowing costs are affecting corporate profit expectations, suggesting that protective strategies may be wise in the coming weeks. For traders, this could mean buying put options on major indices like SPY and QQQ to either profit from or protect against another downturn. Volatility is also increasing, with the VIX index rising over 15% in the past week to trade above 22, indicating that market turbulence is likely. In this environment, long volatility positions, like VIX call options, seem more appealing. We’ve seen this pattern before during the “Taper Tantrum” in 2013, when a sudden rise in Treasury yields caused a sharp drop in the stock market. The current steep rise in the yield curve, with long-term rates increasing faster than short-term ones, is similar to that time. This historical context supports a defensive or bearish approach to equities now. Although gold is currently declining as investors rush into the US dollar, the underlying surge in yields signals long-term economic stress. This makes buying gold during these dips an attractive strategy for long-term investors. We have already observed a 10% rise in open interest for December 2025 gold call options over the past week, suggesting that traders are preparing for a rebound. The US dollar is currently the safest option, attracting investment from other asset classes. The US Dollar Index (DXY) just surpassed 107 for the first time this year, confirming its strength. As long as there is instability in the bond market, positioning long in the dollar against other major currencies remains a key strategy.

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