In the 1980s & 90s, bond investors would dump U.S. treasuries to protest what they perceived as overly-generous government spending or artificially low interest rates from the Federal Reserve.
But today, they’re nowhere to be found. The 10-year treasury yield, which historically tended to track *nominal* U.S. GDP growth (currently at a ~5% annualized rate YTD, from ~2% real growth + ~3% inflation), is currently only ~3.9%. Inflation has been stuck at ~3% or higher for 5 years.
Instead, today’s bond investors have an asymmetric reaction function in which any piece of negative economic news they could cling to causes yields to plunge (including soft data like consumer sentiment surveys, or private-sector reports like ADP & ISM), while it takes a lot of sustained good news to push yields slightly higher.
The $4 trillion One Big Bill price tag, $38 trillion national debt, and now politically-compromised Federal Reserve haven’t caused Treasury investors to blink. Yields have continued to fall.
I think central bank Q.E. changed everything. Bond investors enjoyed outsized returns in 2008 & 2020 as central banks drove bond prices far above fair market value. It’s understandable they’re always trying to time the next windfall. Today, even with a 4% cushion in the federal funds rate to combat future recessions, Federal Reserve officials have not sworn off future usage of Q.E. Wall Street loves Q.E.
Are treasury prices in a permanently high plateau? It should be noted that even with 2022’s “taper tantrum” & inflation shock, yields are only back to where they were in 2007 and lower than the entire half-century preceding the financial crisis.