Listening to the Bond Market

                                                           

July 21, 2021   Today's Top Stories From the Breitbart News Desk Democratic political adviser James Carville once said: "I used to think that if there was reincarnation, I wanted to come back as the president or the pope or as a .400 baseball hitter. But now I would like to come back as the bond market. You can intimidate everybody." The bond market has not been doing much to intimidate anyone lately. Quite the opposite. According to stories in the Wall Street Journal and Bloomberg, the bond market rally is signaling that inflation is not a worry anymore. Bond yields have fallen precipitously, with the benchmark 10-year Treasury note's yield tumbling from 1.75 back in March to 1.292 today. The conventional wisdom is that bond prices should fall if investors expect inflation, which would drive yields up. Falling bond prices are seen as a sign that investors aren't worried that inflation will be anything more than transitory, according to this narrative. Instead of being worried about inflation, investors are now worried about growth slowing by more than expected. The "worried about growth" story probably sounded a lot more persuasive a couple of days ago, when the market was fresh from a Friday-Monday sell-off. It's a bit less persuasive after the Tuesday-Wednesday rally that has put the major indexes back near all-time highs. If the bond market thinks the big problem is sluggish growth, it forgot to tell the Nasdaq Composite. But what if the bond rally is not telling us to ignore inflation? The conventional wisdom that bonds sell off in the face of inflation is based on the idea that inflation will force the Fed to hike rates. But Fed chair Jerome Powell has made it very clear that he is not going to hike rates even if inflation comes in hotter than expected. If investors find that credible—and there's no reason they should not—then they'd have no reason to sell into inflation. In an intriguing article for the Federal Reserve Bank of St. Louis Review, Fed economist David Andolfatto argues that if the Fed thinks Congress is going to keep authorizing deficit spending for as far as the eye can see, the Fed should definitely not hike rates to fight inflation. A rate hike would only push up the cost of all that debt, forcing the Fed to monetize more of it, making inflation even worse. Better to simply announce a temporarily higher inflation target and let rates stay low, which seems to be a very good description of what Powell is doing. – Alex Marlow & John Carney Breitbart News Network     TOP STORY   Carney: What the Bond Rally Is Really Saying About Inflation The decline in bond yields may not be the reassuring sign about inflation's lack of staying power that conventional wisdom perceives. The yield on the benchmark 10-year U.S. Treasury note fell as low as 1.194 percent in trading on Wednesday, far below the recent peak of around 1.75 percent in March. According to conventional wisdom, this fall in yields would indicate that investors are less worried about high inflation and more worried about growth slowing. That's because the conventional wisdom holds that the Federal Reserve would react to hotter than expected inflation by raising its interest rate target and the interest it pays on reserves, which would be expected to result in higher yields on longer-term Treasuries. [Click here for more]   IN OTHER STORIES... Government Could Run Out Of Cash in October or November If Debt Ceiling Isn't Raised Unless Congress raises or suspends the debt ceiling, the federal government will most likely run out of money in October or November, the Congressional Budget Office said Wednesday. Congress suspended the debt ceiling, which limits the amount of outstanding federal borrowing to... [Click here for more]   Chuck Schumer Argues Spending Trillions Will 'Ease Inflation Pres­sures' Senate Majority Leader Chuck Schumer (D-NY) will release a report Wednesday that argues spending trillions will "ease inflation pres­sures." The report, written by Moody's chief economist Mark Zandi, claims inflation worries are "overdone," because "much of the additional fiscal support ... is designed to lift the economy's longer-term growth potential and... [Click here for more]   Mitch McConnell Takes Stand on Debt Ceiling Senate Minority Leader Mitch McConnell (R-KY) said Tuesday Republicans will not support raising the debt ceiling, a move that could grind Democrats' infrastructure push to a halt. McConnell declared he believes not one single Senate Republican would support raising the debt ceiling, which expires at the end of... [Click here for more] FOLLOW   Did you receive this email from a friend? Sign up to receive Breitbart Business Digest.   ©2021 Breitbart News 149 S. Barrington Ave. #401 Los Angeles CA 90049 USA Want to change how you receive these emails? You can *update your preferences or *unsubscribe from this list. Subscription Information This email was sent to  Webmaster220 Bible Study Blog *the blog owner has deleted the hyperlink intentionally