FOMC Members Signal Policy 'At or Near Peak' for Tightening Cycle
Krugman: Is the crazy nature of U.S. debt due to the market believing that Trump will go insane?
Krugman proposed that the rise in long-term interest rates, such as the 10-year U.S. Treasury yield, may reflect a terrifying, quietly spreading doubt that Trump actually believes the crazy things he says about economic policy and might put them into practice.
The Global bond market is experiencing a frantic sell-off, with US Treasury yields quickly approaching 5%.
The 20-year US Treasury yield has already broken through 5%, while the UK 10-Year Treasury Notes Yield has also risen to 4.82%, reaching a new high since 2008. Inflation worries have prompted traders to lower their expectations for interest rate cuts by the Federal Reserve and the Bank of England this year, and at the same time, the market is weighing the impact of President Trump's policies.
The last time the US bonds dropped like this, the US stock market also crashed.
Recently, the rise of the 10-year U.S. Treasury yield is similar to the situation in 2022 and 2023, when the stock market experienced a substantial decline. Goldman Sachs stated that although the U.S. stock market is relatively stable now, the correlation between stock and bond yields has turned negative. If economic data falls short of expectations, the risk of a market correction in the short term may increase.
Trump's Day One: Incoming President Looks Set to Act on Tariffs, Crypto, Energy and Immigration
Yellen: Biden's pandemic spending may "slightly" drive up inflation, a stronger economy fuels U.S. debt selling.
Yellen stated that the government spending following the pandemic is necessary, and that high inflation mainly stems from supply chain issues; she is confident that inflation remains on a downward trajectory; the current sell-off of U.S. Bonds is due to the economy being stronger than expected, leading to a repricing of market interest rate expectations, but the term premium has begun to normalize; she hopes the Trump administration will take the deficit seriously and does not wish to see the 'Bond Vigilantes' make a comeback; after leaving her position as Treasury Secretary, she may return to the Brookings Institution.
