Skip to content
Subscriber Only
Opinion
Charles Lieberman

Bond Investors Rationalize the Unrealistic

Buying 10-year Treasuries means locking in negative after-tax and inflation returns for a decade. That's hardly a satisfactory investment.
Fed Chair Janet Yellen lays the groundwork for more rate hikes.

Fed Chair Janet Yellen lays the groundwork for more rate hikes.

Photographer: Chip Somodevilla/Getty Images

Bond investors, your time is up. Four consecutive months of weaker-than-expected inflation excited buyers, helping them rationalize the unrealistic heights reached in the bond market even though the underlying economic fundamentals are simply inconsistent with prevailing interest rates. That's something the Federal Reserve fully appreciates, but investors don't.

Many people, including Fed Chair Janet Yellen, have been surprised by the recent slight moderation in inflation. It's inconsistent with any known economic theory, and almost impossible to rationalize. But this also means it could reverse just as quickly without explanation. It could simply be an outlier and we are simply returning to more normal behavior.