The Era of Bond Shortages and Conundrums Is Over

The Federal Reserve promised bond investors last year that its momentous shift from quantitative easing to quantitative tightening would have minimal impact on markets. Policy makers were concerned that a drastic increase in the supply of available U.S. Treasuries could destabilize the markets, just like in 2013 when then-Fed Chairman Ben S. Bernanke signaled the central bank might slow its bond purchases.

Although the bond market quickly recovered back then, what's different now is that the inflation data is starting to look stronger and central banks globally are sounding less dovish, meaning there's very little to keep yields from continuing to rise. The era of bond shortages and so-called conundrums that kept long-term yields suppressed even as the Fed raised interest rates appears to be over. The deluge of Treasury supply is finally having a negative impact on the market, partly offsetting demand from investors seeking shelter from the rout in equities and volatility that has exploded across all assets.