“People are worried about German/French/Italian/Japanese/Swiss/Canadian solvency” [1]
“Germany’s benchmark 10-year bund yield was last seen trading at a 15-year high, while its French counterpart reached its highest yield since 2008. Japan’s 10-year bond yield rose to 2.954%, topping the 40-year high seen in the spring. Yields also spiked across the curve on British, Italian, Swiss and Canadian government bonds.”
Financialized AI (debt: ~$2T), private equity (zombie debt: ~$4T), government spending ($7.2T, debt: $39.9T), and the very rich (and up) are the economy right now. Everyone else is/has pulled back and is hurting because of rising prices and job uncertainty.
It's not all inflation expectations, either. The dollar has been strong lately due to elevated oil prices---countries that are short need extra dollars to buy oil, so they often liquidate treasuries to get them.
Well yes. A stock goes up because people are buying, but that avoids the intent of the question, if they're asking about why the stock is rising.
The answer the GP. The longer term bonds tend to be less impacted by interest rate expectations. Risk feeds into the yield, as does inflation expectations.
You have that backwards. The market sets the long end of the curve via supply and demand,the Fed controls the short end of the curve (federal funds rate)
If the Fed hiked the (short-term) FFR, long term inflation expectations would go down, along with the yield of long duration Treasury bonds.
Long-term bonds can be replaced with short-term bonds which are constantly rolled over. It wouldn't make sense if the market was pricing in anything else than future interest rates.
You are largely correct for the pre QE years. But with QE, bonds further out the curve have been purchased by the Fed, and the yields for such maturities have been artificially suppressed. Warsh, at on time, really cared about this mispricing of risk. We'll see how he feels now that he's got his hand on the rudder and the orange colored man breathing down his neck.
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