Time for a Tantrum?
The bond markets are getting fussy.
DealBook
The bond market gets fussy
The S&P 500 suffered
its worst single-day drop in a month yesterday, with tech stocks hard hit. But the big story is in bonds, where yields surged (and prices fell) as investors worried that the Fed wasn’t, well,
worried enough.
Is this another “taper tantrum”? The sharp rise in government bond yields in recent days, particularly in the longer-dated maturities used as benchmarks for consumer loans and mortgages, reminded many of the 2013 “
taper tantrum.” Then, a jump in yields followed comments from Ben Bernanke, the Fed chairman at the time, that he would taper off the central bank’s emergency bond-buying program, which was propping up markets after the financial crisis.
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This time, the Fed isn’t suggesting anything like that. Instead, it’s the central bank’s calm despite a potential surge in post-pandemic economic growth that seemingly spooks investors. They fear that keeping rates low and stimulus flowing freely will stoke inflation, which would require raising rates and withdrawing stimulus sooner than expected.
Cue the toddler metaphors. As every parent knows, there are several stages that a child goes through before hitting a full-blown tantrum:
- “As long as the Fed is far away from tapering, it is too early to throw a serious taper tantrum,” Holger Schmieding of Berenberg wrote.
- This is a “tantrum without the taper,” noted analysts at TD Securities (and others).
- The financial adviser Richard Bernstein, in a Financial Times op-ed, wrote that the Fed should ignore the bond selling, likening it to teaching “babies to self-soothe and fall asleep on their own.”
But what if the tantrum is for real? A truly serious bond sell-off often leads to “contagion, illiquidity, busts, bankruptcies” and other ills, across all assets, analysts at Bank of America noted. That said, the 2013 tantrum faded relatively quickly and markets regained their footing. Now, the “only reason to be bearish is there is no reason to be bearish,” the analysts wrote (as good a reason as any for most tantrums).
- Stocks are still mostly up on the year, and futures this morning suggest that equities and bonds are set for modest gains as cranky investors calm down — or take a breather before resuming their protest.
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