Fear of inflation Finds a place in the Bond market

The so-called bond vigilantes are likely to return, after 30 years leading the sale of Treasury security

source: https://ibb.co/LhZ6dVL

In the hope that the government will spend more money on the new Democratic administration.

The Federal Reserve has reduced the risk of inflation, and many experts ignore the risk of further inflation. However, there is ongoing debate on Wall Street over the prospect of higher inflation and rising interest rates.

The value of Treasury's 10-year documents has skyrocketed in recent weeks, indicating that traders are taking the threat of inflation seriously. If the trend continues, it will put investors in a position to clash with Biden's management, which has recently received $ 1.9 billion in funding and wants to spend more billions on infrastructure, education and other programs.

A possible conflict reminded market veterans of the 1990s, when the yield on Treasury securities had risen sharply as Clinton executives considered plans to increase spending. As a result, officials quickly turned to reducing deficits as a priority.

Ed Yardeni, an independent economist, coined the term bond vigilantes in the 1980s to describe investors who sell bonds among the signs that the debt crisis is getting out of hand, especially when major banks and others do not act as steep.

As bond prices fall and commodity prices rise, borrowing becomes more expensive, which can force lawmakers to spend less.

"It seems they are going up and creating a situation every time inflation returns," Mr Yardeni said. "Obviously they are back in the U.S. So while it's good for the Fed to argue that inflation will pass, bond warnings won't believe it until they see it."

Fruit in the Treasury's 10-year report reached 1.75% last week before returning this week, a sharp increase from less than one percent earlier this year.

Not all retailers strongly oppose government spending - some simply act in the belief that yields will rise sharply as economic activity takes over, or jumps on popular trade. But the result is the same, pushing yields are higher as bond prices fall.

Fruits remain surprisingly low at historical levels even in recent trade. Two years ago, the 10-year-old Treasurer paid 2.5 percent - many bond investors would be happy to return to those yields as the government note purchased today pays less interest rates. And during Clinton's tenure, Treasury's ten-year yield increased to 8 percent, from 5.2 percent between October 1993 and November 1994.

However, Mr Yardeni believes that the bond market means something policymakers today should be aware of.

"The main purpose of the bond vigilantes is to be heard, and they are whistling," he said. "It can come back and bite Biden's plans."

However, evidence of inflation remains difficult. Consumer prices, with the exception of food and energy sectors, have softened, as have wages. And even before the epidemic, unemployment did not improve for decades without inflation.

Indeed, security guards are always on the outside. Even many economists in financial firms who expect to grow rapidly because of the incentive package are not ready to predict inflation.

"Inflation is no longer the same," said Carl Tannenbaum, an economist at the Northern Trust in Chicago. "Global trade, technology and e-commerce are all making it harder for firms to raise prices."

In addition, with more than nine million jobs lost last year and an unemployment rate of 6.2 percent, it is likely that there will be more economic stagnation.

That is how Alan S. Blinder, a Princeton economist who was an economic adviser to President Bill Clinton and a former Fed official, sees it. Even if inflation rises slightly, Mr Blinder believes the Fed's target of inflation, set at 2 percent, is reasonable.

"Bond traders are a wonderful place, and they go to extremes," he said. "If it's true make-up, they'll react too much."

Indeed, there have been rumors of the return of bond vigilantes earlier, as in 2009 as the economy began to emerge from the deep hole of the last recession and rising rates. But over the next decade, both yields and inflation continued to decline. If any, deflation was more of a concern than rising prices.

It’s not just bond sellers who are concerned. Some of Mr. Blinder's colleagues from Clinton's administration warn that general economic intelligence has not fully accepted the possibility of higher rates or higher prices.