Source: Fortune
Summary
Bank of America analysts say the recent bond market selloff is driven by deteriorating U.S. fiscal health, not just high oil prices and inflation. The yield curve has steepened, with long-term rates leading the charge higher, and the 30-year yield hit 5.18% on Tuesday, the highest since 2007. The federal government’s need to issue more debt and increasing interest costs are contributing factors. The Fed’s potential rate hikes could further exacerbate the situation, making debt servicing costs even higher.
Our Reading
The numbers tell one story.
Bank of America says the bond vigilantes are back, protesting huge deficits by selling off bonds to push yields higher. The yield curve has steepened, with long-term rates leading the charge higher. The 30-year yield hit 5.18% on Tuesday, the highest since 2007. The federal government’s need to issue more debt and increasing interest costs are contributing factors. Fiscal policy is the elephant in the room, according to BofA.
The situation is a perfect storm of deteriorating fiscal health, high oil prices, and inflation, making the bond market increasingly sensitive to the Fed’s potential rate hikes.
Author: Evan Null
