What about bonds?

Financology has asserted on multiple occasions that the late great secular bull market in bonds that began circa 1980 ended in 2020. And that we’ve since entered a secular bear market. We’re not the only ones, but most of the financial establishment seems to just be waking up to that prospect. For the better part of the last few years, the Big Question has been when and how much rates would fall. That they might rise seems to just be coming onto the radar.

It’s almost difficult to believe something so obvious could be missed by so many. The post-crisis years of ultralow rates and yields was pathological, not normal. A mere return to normality should have been the central expectation.

Now thirty year treasury yields are making news for having nosed above pre-crisis levels for the first time since, well, pre-crisis. Even short yields which normally track close to overnight Fed targets are trading well above those Fed targets, indicating the Fed is behind the curve and below market. Of course this comes as a great surprise to us as we always thought the Fed was in charge (he says with sarcasm).

This, partly due to the massive size of the near forty trillion dollar US treasury market and the still dominant if fading role of the US dollar in global finance, means that other markets are obliged to follow its lead on the time value of money. If anything, it’s remarkable that stocks have held up as well as they have … in an imitation of Wile E Coyote after he’s run off the edge of the cliff but hadn’t yet looked down. Commodity prices are feeding into this as inflation has become too obvious to continue to dismiss. Gold prices, too, have run into a glass ceiling as markets anticipate that even if the Fed fails to tighten, the bond market will do it for them.

All markets are in bondage to US Treasuries.