The Bear Market in Bonds Already Looks Shaky

The New Yorker magazine once ran a cartoon depicting two politicians sitting in an office in the shadow of the Capitol, with a man behind the desk saying, “Those who ignore history are entitled to repeat it.” That sentiment looks especially relevant to traders who specialize in using borrowed money to make big bets on U.S. interest rates.

These players are once again engaging in their annual New Year’s ritual of large-scale wagers that lower bond prices are ahead. And who can blame them? In recent years we have witnessed a predictable pattern: Bond bears believe that this time is different, and that the Federal Reserve won’t be spooked by unpredictable events such as a weak first quarter for the U.S. economy, the shock of a hard exit by the U.K. from the European Union, or a meltdown in China’s markets. Those have all caused the central bank to put off normalizing the suppressed rate structure put in place eight years ago amid the worst financial crisis since the Great Depression.