The Fed Wrecked the World’s Most Important Market
Do you wish to know where the economy is heading? The bond market holds the answer, say the veterans.
The birds of the moment, the flighty birds, flock to the stock market. But the owls nest in the bond market.
The owls are the wiseacres.
The Federal Reserve’s hocus-pocus fails to trick them. They know the card is up the sleeve. And they enjoy exposing the fraud.
New York Times economics reporter Neil Irwin:
Savvy economic analysts have always known the bond market is the place to look for a real sense of where the economy is going, or at least where the smart money thinks it is going.
For example: Is inflation ahead? The bond market will tell you — Treasury bonds in particular.
Bonds and Inflation
Longer-dated Treasury notes will telegraph the signal. If they wire an inflationary message, their prices will fall. And their yields will rise.
(Bonds operate as seesaws operate. When prices go up, yields go down. When yields go up, prices go down).
Yields would rise because inflation would eat into the bond’s value… as the termite eats into wood. Under inflation a bond is a sawdust asset.
Bond purchasers would demand a higher yield to compensate them for inflation’s ravages.
That is, they would demand insurance against the termite’s evils.
The Message of the Bond Market
Does today’s bond market indicate inflation is ahead?
It does not. 10-year Treasury notes presently yield under 1% — 0.923%.
These are historic lows. 10-year yields average 4.40% across time.
In brief… the bond market indicates no inflationary menace. Inflation is as tame as a tabby.
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