Bad News From Bonds?

Get Ready For Some Bad News? – An Economic Growth Warning From Bonds

 

Global bond markets, led by US Treasuries, are suffering their worst performance for years. In fact, in terms of length, investors are experiencing the biggest negative run since the 1950s. However, markets never move in straight lines, and the importance of the bond markets, both in the pricing of other assets and in providing collateral for liquidity creation, surely means this bond sell-off will have negative feedback effects? In other words, an economic law of gravity exists where rising yields ultimately trigger falling yields. The transmission is via the ‘safe asset’ feature of bonds and occurs when either risk appetite outpaces economic prospects and/ or liquidity tightens sufficiently to hurt the economy. We are getting closer.