Could Bond Markets Finally Be Making Sense Again?
Rising long-term yields around the world show that the basic laws of macroeconomics still apply: Higher risks result in higher rates.
Finally making sense?
Photographer: Michael Nagle/Bloomberg
For decades, betting that long-term bond rates would rise was known as the widow-maker trade: It was simultaneously the most sensible and the most consistently money-losing wager an investor could make. Could this be the month the trade finally pays off?
The logic remains sound. As rich countries grow older, they are spending like crazy, and they have no earthly way of paying for all their debt. So it stands to reason that rates will go up eventually. And yet for most of the last 20 years, rates didn’t go up — they went down. This so defied the basic laws of economics that some economists said they no longer applied — and then policy makers believed them, and spent even more.