The Bond Market Vigilantes Are Still Not In The Same Hemisphere As We Are

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Includes: LTPZ, SCHP, SPIP, STIP, STPZ, TIP, TIPZ, TPS
by: Brad DeLong

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Matthew Boesler:

US Real Rates Rise Central To Markets: For the first time in years, real interest rates are rising rapidly in America, leading to strength in the U.S. dollar…. Bond markets across both the developed and the emerging worlds are selling off as rising interest rates in the U.S. make American government debt a more attractive investment… caused a bout of weakness in stock markets from the U.S. to Europe, from Japan to emerging markets, and almost everywhere in between. All of this begs the question: are central bankers finally losing control of long-term interest rates, which for years following the global financial crisis of 2008 have been their most powerful policy instruments?

Answer: no. When the 10-Year TIPS yield gets above 2.5%/year it might be time to start thinking about whether the long run in which the bond market wreaks its will upon the economy and constrains the Fed might be on the way. When the TIPS yield crosses zero? No way…