Is Trouble Brewing Underneath the Bond Market?
News Analysis
The U.S. treasury bond market has tumbled this year. That’s no surprise.
Between the Federal Reserve’s interest rate hikes and quantitative tightening, 10-year treasury yields have increased from 1.6 percent to more than 4.0 percent year to date (bond yields have an inverse relationship with bond prices).
But this doesn’t feel like a regular bond bear market. While the bond market appears calm on the surface, increasingly there’s talk of a “liquidity crisis” brewing from too many forces acting in union. In other words, a functioning market—no matter which direction it is going—needs both active buyers and sellers. Today’s market has been whipsawing, with extremely low liquidity (meaning very, very few buyers at any price) and high volatility. And that could be bad news not just for the treasury bond market but for other financial markets….