The bond market is front and center for investors these days, with JPMorgan warning of a “financial accident” if yields keep going up, driving prices lower.
In a note to clients, Yardeni ticks off evidence of those bond vigilantes in action. For starters, the fact that the 10-year Treasury yield BX:TMUBMUSD10Y rose on recent weak data instead of declining suggests a “shift in bond investors’ focused from what monetary policy makers may do to rising alarm about what fiscal policy makers are doing.”
“Perversely, now that the Fed seems to be on the verge of terminating its rate hiking, bond investors might have concluded that short-term rates aren’t high enough to cause a financial crisis, credit crunch, and a recession,” he said. And for sure, the wild bunch have DC policy makers in their sights, after causing the Treasury market to fully reverse a drop in the 10-year yield from the global financial crisis through the pandemic over the past three years, he notes.
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