Breitbart Business Digest: Who’s the Boss of the Bond Market?

What’s Really Driving Bond Yields Higher?

The bond market is enjoying a reputational renaissance. Bond traders are increasingly seen in the role Ed Yardeni assigned them years ago, as the “bond vigilantes” warn that the government is borrowing too much. The idea that James Carville famously posited—that everyone is really afraid of the bond market—is back in vogue.

Rising Treasury yields are routinely presented as a warning from an unusually sober and wise constituency. The traders are warning us about the risks of fiscal recklessness, too much debt, and deficits running too high. You’ve probably heard some version of this. “Bond traders are demanding a higher return because they think the inflation risk is higher.” “Bond traders require higher yields because they’re worried about the ability of the government to service so much debt.”

But what, exactly, are bond traders rendering a verdict on? A higher yield could express doubt about fiscal policy. It could be an expression of confidence in the growth of the economy and the performance of competing financial assets. Those are the two main competing narratives, right now.

But the bond market may also be simply reflecting the view that the Federal Reserve will keep its…

Original source: https://www.breitbart.com/economy/