Bonds Away!?

Long-term Treasury bond yields surged last week despite news that March inflation was subdued and consumer sentiment is falling fast. That’s partly because the federal budget deficit is too d@mn high! In the past, recessions and lower long-term bond yields were associated with higher deficits; but the budget deficit has been widening since Covid despite a growing economy. Supply of long-term bonds also affects yields, but less so since the Treasury Department started issuing more short-term debt in 2023. Observers have been perplexed by the rise in long-term yields, but the reason for it may simply be that global demand for US Treasury bonds has shriveled, as Trump’s Tariff Turmoil is raising inflationary expectations.