How interest rates flow through bonds, currencies, equities and gold
“Rates rose” is an observation. Expected policy, real yields, inflation compensation and term premium explain very different worlds.
Decompose the yield
A nominal long yield can be viewed as expected short rates plus compensation for inflation and duration risk. Model estimates are uncertain, but the decomposition matters. A rise driven by stronger real growth differs from a rise driven by fiscal supply or unanchored inflation expectations.
Bonds
Bond prices move inversely to yields, with longer duration creating greater sensitivity. Curve changes add information: bull steepening, bear steepening, flattening and inversion imply different movements at the front and long end. Credit bonds add spread and default risk, so government-rate direction is only one component.
Currencies
Rate differentials affect carry, but a currency also reflects growth differences, external balances, safe-haven demand, capital flows and credibility. A hike responding to a damaging inflation shock may not strengthen a currency. Compare relative paths and the reason policy diverges.
Equities
Higher discount rates can compress the present value of distant cash flows, but earnings may rise if rates reflect strong demand. Sector duration, leverage, pricing power and funding needs determine dispersion. An index-level rule hides these mechanisms.
Gold
Gold has no contractual cash flow, so real yields can raise its opportunity cost. Yet the dollar, reserve demand, fiscal credibility, inflation tail risk and risk aversion can offset that relationship. Never explain every move with the variable that happened to work most recently.