Surging bond yields flip the script of the market's biggest story
A sharp selloff in US bonds has upended the narrative that has dominated financial markets this year.
Markets are experiencing serious whiplash. For months, investors have been soothed by a simple idea: interest rates are at or near their peak, the inflation genie is actively being shoved back into the lamp and the economy is chugging along.
It was a convenient story. After all, investors and households had just been subjected to the sharpest rate tightening cycle in living memory and yet the economy has largely withstood it.
But the bond market has this week delivered a plot twist to the soft landing story that has underpinned a rally in equities this year — that central banks could avoid breaking something even as they rapidly lifted rates.
Yields on 10-year US Treasuries this week hit their highest point since 2007, as policymakers indicated rates could go higher still. While they subsided on Wednesday night and equities rebounded, the message is clear. Rates will stay higher for longer and that will have an impact on growth.
