The Bond market doesn’t always speak of the precarious nature of the US economy, but when it does — it speaks loudly and carries a big stick.
“The possibility is that the fiscal time bomb of nonstop spending that Joe Biden and his crew have planted is ready to explode just in time for Trump to take office.
“Most of the financial punditry is too obsessed with stock indexes to appreciate the bond market’s warning signs.
“Stock prices have their place, of course.
“When investors pile into stocks as they’ve been doing since Trump’s election — until recently, that is — it’s an indication that many are betting his policies of lower taxes and less regulation will lead to higher corporate earnings and GDP growth.
“For my money, the bond markets provide a more accurate window into underlying fissures that could lead to severe fiscal distress in the future.
“Recall, the Dow reached record highs at the end of 2007 just as lending markets started to flash the first warning signs of the 2008 financial crisis.
“And that’s just one example of bonds exposing a problem well before the rest of the financial world had a clue.
“The best gauge of this is the price of the 10-year bond the Treasury issues to finance much of the federal debt. Smart traders follow it for signs of economic distress because consumer rates — such as mortgages — are priced off of its interest rate, or “yield.”
“Bond prices move in the opposite direction from yields.
“And since the beginning of December, prices of the 10-year have nose-dived while yields have spiked significantly, more than 10%.
“As deficits explode, the Treasury will have to issue more debt at those lower prices and higher yields to attract enough buyers.
“Even worse is that at some point those buyers — particularly foreign adversaries like the Chinese who increasingly finance our largesse — might scale back significantly on the bond buying.
“The result could be catastrophic, with yields skyrocketing, causing a recession or even worse.
“Those are the alarm bells the bond market is sounding, and the reason for the recent sell-off in stocks.”
– Charles Gasparino
Charlie Gasparino is a prominent business journalist, author, and television commentator, known for his incisive reporting on Wall Street and corporate America. He began his career at The Wall Street Journal, earning a New York Press Club award, and later broke major stories at Newsweek, including the compensation scandal of NYSE chairman Richard Grasso. Since 2010, he has providing impactful financial analysis and breaking news on major events such as Citigroup’s stake sale and Bank of America’s restructuring. A prolific author, his books include the bestseller The Sellout, which won the 2009 Investigative Reporters and Editors Award. Recognized as a top financial commentator by MarketWatch and The Daily Beast, Gasparino remains a significant voice in financial journalism.
