Inconceivable? Yields Are Defying All Expectations
What do President Joe Biden’s spiraling approval numbers have to do with it? More than you’d think. And the prospect of a Donald Trump resurgence is dampening hopes of policy certainties.
Tough times are part of the job. But ...
Photographer: Win McNamee/Getty Images
One of the greatest mysteries confronting the markets is the obdurate persistence of low real bond yields. Inflation breakevens are rising sharply in Europe, and they are near the top of their recent ranges in Europe — but the failure of fixed-income yields to follow them, even now that the Federal Reserve is expected to start tapering off its QE bond purchases within weeks, means that real yields have fallen yet again. In the case of 10-year TIPS yields for the U.S., they have managed to fall once again below the once-inconceivable minus-1% level. Yields like that are not supposed to happen, and certainly not when the economy is growing and people are worried about inflation.
There are many potential explanations for this. Politics is among them — and may get less attention than it deserves.