Bond Yields On The Spectrum: From Good To Ugly

Is the bond selloff the Revenge of the Bond Vigilantes, i.e., a looming debt crisis? Not yet. Despite the recent surge, the 10-year Treasury yield remains below the growth rate of nominal GDP. That points toward an upward repricing of the neutral interest rate. Ed and Elias examine the spectrum of forces behind higher yields, from rising R* to a potential debt-crisis scenario. The real warning sign would be if the yield rises above nominal GDP growth. In addition, they consider two other spectrum scenarios: the war in the Middle East and the yen-carry trade. … Also: The latest labor market data suggest resilient but noninflationary strength. … And: Dr Ed reviews “Tony” (+).