Bond Tantrums Should Be Considered Good Economic Omens

More major central banks are talking about joining the Federal Reserve and tightening their monetary policies. And yet what was generally expected to be a nightmare scenario for global equity investors has been anything but, despite a repricing of bond yields higher in many markets this month in response to the hawkishness, especially in the U.K.

The reason stock markets have been relatively sanguine is that central bankers are responding to stronger economies globally. It would be different if growth were seen as uncertain, just as it was in 2013, when risk assets took a temporary hit from the Fed-induced “taper tantrum” that sent yields shooting higher over the course of four months. Since then, central bankers have learned an important lesson: Clearly communicating intentions will help temper uncertainty, allowing bond yields to settle down and foster looser financial conditions. Put another way, rising bond yields that reflect stronger economic growth may actually function as an “easing” for equities.