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Robert Burgess

The Most Important Number of the Week Is 2.51

If bond traders truly believed inflation was poised to keep accelerating, the last thing they would do is pile into 10- and 30-year Treasuries.

To borrow from “Monty Python and the Holy Grail,” the bond market is not dead yet.

To borrow from “Monty Python and the Holy Grail,” the bond market is not dead yet.

Photographer: John Downing/Hulton Archive/Getty Images

By now you have to wonder whether the only people left holding bonds are masochists. The U.S. Treasury market foisted losses on investors last year for the first time since 2013 and for only the fifth time since the early 1970s. This year hasn’t started any better, with the market on pace to drop around 2.5% for January, which would make this month the worst since November 2016, when Donald Trump was elected president after suggesting the U.S. should renege on its debt obligations. But just like that famous scene in the 1975 British comedy “Monty Python and the Holy Grail,” the bond market “is not dead yet.

It’s no secret why the bond market is under pressure, translating into higher yields that ultimately push up borrowing costs for the government, companies and consumers. First, the inflation rate has risen more than most anyone expected and has failed to retreat as many anticipated would happen by now. As a result, the Federal Reserve is under pressure to boost its target interest rate three to four times this year, end its bond purchase program much sooner than it said it would and even start shrinking its $8.79 trillion balance sheet by selling the bonds that it holds into the market. If you’re a bond investor, this is the ultimate perfect storm.