US policymakers think there’s nothing wrong with the bond market, despite a publication from the Bank of America stating that now is the worst bond bear market in US history.
The long-term treasury prices lost 46% since March 2020, with the 30-year bond down 53% which is inverse to the highest yield since 2007, according to Bloomberg data. Meanwhile, the 10-year Treasury yield spiked to 4.9% intraday on Friday before it pulled back later.
The recent strong jobs market data might be interpreted as the re-accelerating of the US economy. However, it’d incentivize the Fed to hike rates further as much as the market can take to kill the inflation.
Ex-Monetary-policy-head (Fed chair) now turned Fiscal-policy-head (US Treasury Secretary), Janet Yellen commented on the surging borrowing costs, saying that it’s “pretty standard”, as she sees nothing wrong with market function after the interest rates had sharply increased since last year.
“What could be a problem is if we saw the labour market overheating, but I didn’t really see evidence here of that,” she said to the Financial Times on the sideline of the IMF and World Bank’s week long meeting.
“[With] the rate rise in and of itself, it’s not obvious that it is putting a huge amount of pressure on households or businesses,” she added.
Yellen also mentioned the credit quality overall was “very solid”. So bank failures are unlikely as many vulnerable banks have reduced their bank run risk by tapering their uninsured deposits, while the borrowers are weathering the higher rates.
