- Yield spreads are getting wider.
- Safer bonds are no longer attractive.
- The market is pricing in inflation, and rightly so.
Sunday, the Washington Post highlighted the fact the US government is anticipated to issue $ 1 trillion in new bonds just as the desire to hold safe assets is declining due to synchronized global growth. The question is what this means for inflation and for interest rates, and therefore, for bond markets. A lot of this depends on how the Fed reacts and whether the US economy is operating at full employment. My analysis follows below.
Getting off zero is unprecedented
In a lot of ways, these are still unprecedented times. The Federal Reserve is the first major central bank to implement a zero interest rate policy and be able to reverse that policy without a recession breathing down its neck. The Bank of Japan has never really left zero. It tried in 2006 and 2007, but the global credit crisis stopped them cold.See the rest of the story at Business Insider
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See Also:
- Here are the biggest risks for bonds
- Here’s what the yield curve is signaling
- There’s a key driver behind the depreciating US dollar
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