๐ Bond market under pressure: war is the main factor
The global bond market is facing a combination of forces that are pushing yields to multi-year highs. According to The Wall Street Journal, there are four main factors behind this move โ but inflation, driven by the energy shock caused by the war with Iran, appears to be the main catalyst. (The Wall Street Journal)
โฝ 1. Energy and inflation
Rising fuel prices, especially diesel, increase costs across transportation, agriculture, construction, and production. Diesel in the U.S. has already surpassed US$ 5,68 per gallon, about US$ 2 higher than a year ago.
๐ฐ 2. Public deficits
U.S. gross debt has surpassed US$ 40 trillion, fueling concerns about fiscal sustainability. The United Kingdom, Japan, and other economies are also seeing pressure on their public finances.
๐ 3. Term premium
The so-called term premium โ the compensation investors demand for holding long-term bonds โ has also risen. This indicates that the market is charging more to take on fiscal and inflation risks over extended periods.
๐ฆ 4. Uncertainty about the Fed
Kevin Warshโs arrival as chair of the Federal Reserve added a new source of uncertainty to interest-rate expectations. Even with signs of growing concern about inflation, the lack of clearer forward guidance could increase the premium required by investors on long-term bonds.
โ ๏ธ The key point: when inflation, war, high deficits, and monetary uncertainty appear at the same time, investors tend to demand higher yields to buy long-term debt.
And higher yields on bonds mean lower bond prices, a higher cost of financing for governments and companies, and potential pressure on stocks and other risk assets.
The bond market is therefore sending an important signal: long-term money is getting more expensive.
The global bond market is facing a combination of forces that are pushing yields to multi-year highs. According to The Wall Street Journal, there are four main factors behind this move โ but inflation, driven by the energy shock caused by the war with Iran, appears to be the main catalyst. (The Wall Street Journal)
โฝ 1. Energy and inflation
Rising fuel prices, especially diesel, increase costs across transportation, agriculture, construction, and production. Diesel in the U.S. has already surpassed US$ 5,68 per gallon, about US$ 2 higher than a year ago.
๐ฐ 2. Public deficits
U.S. gross debt has surpassed US$ 40 trillion, fueling concerns about fiscal sustainability. The United Kingdom, Japan, and other economies are also seeing pressure on their public finances.
๐ 3. Term premium
The so-called term premium โ the compensation investors demand for holding long-term bonds โ has also risen. This indicates that the market is charging more to take on fiscal and inflation risks over extended periods.
๐ฆ 4. Uncertainty about the Fed
Kevin Warshโs arrival as chair of the Federal Reserve added a new source of uncertainty to interest-rate expectations. Even with signs of growing concern about inflation, the lack of clearer forward guidance could increase the premium required by investors on long-term bonds.
โ ๏ธ The key point: when inflation, war, high deficits, and monetary uncertainty appear at the same time, investors tend to demand higher yields to buy long-term debt.
And higher yields on bonds mean lower bond prices, a higher cost of financing for governments and companies, and potential pressure on stocks and other risk assets.
The bond market is therefore sending an important signal: long-term money is getting more expensive.
