David Stockman on The Coming Bond Bear Market… And What Comes Next
The comments below are an edited and abridged synopsis of an article by David Stockman
If you didn’t think the $70 trillion global bond market was worrying, last week’s yield surge was a wake-up call. From the 2.15% close one week earlier, the 10-year yield soared to a peak of 2.50%; and that 36 basis point gain was the culmination of a stunning 200 basis point rise from the cyclical low point (0.51%) recorded during July 2020.
The US economy, with $87 trillion in debt, representing a record 365% of GDP, can’t take much in the way of interest rate increases. But when the Fed is drastically behind the curve, and will be forced to brake hard in the coming months, you are talking about a recipe for financial carnage.
Of course, the Fed is just beginning to recognize the mess it is in. It has literally buried the bond market in false economics: Ultra-low nominal yields that cannot possibly withstand the inflationary gales coming down the pike.
Stockman discusses the real yield on the world’s benchmark bond; how the global bond market bubble is deflating at a fearsome pace; the Fed’s post March 2020 printathon that caused a radical plunge in mortgage rates triggering a speculative run-up in housing prices; and the corporate sector’s shrinking equity base.
Needless to say, Wall Street is sleepwalking. As the bond bear gathers girth it will become increasingly obvious that we are in the early stages of a much larger, seismic shift not only in monetary policy, but in the state of the US economy.