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Bond Market Heads Into Treacherous Waters as Activity Subsides

  • Conditions seen favoring additional large daily yield moves
  • Confidence is low that drop in yields will be sustained

As the bond market limps toward 2023, it faces the prospect of a final bout of chaos, exacerbated by dwindling trading volume typical during the last weeks of the year.

The most punishing time period on record for investors in US government bonds has also been one of the most volatile, with frequent large daily changes in yield. Mostly, those were about pricing in Federal Reserve rate increases aimed at squelching inflation. Developments this week made clear that the turbulence may endure a while longer.