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Bonds Feel Hurricane of Rising Yields

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This week’s bond auction did not go well. Yes, all the bonds were sold, but the yields were at much higher levels than the government had hoped and the bond market had anticipated.

It seems that our nation’s lenders are beginning to demand higher returns on their money based upon expectations for our economy. Investors are vacillating between the arguments in favor of a deflationary future and an inflationary future. You can see that from August to October, the deflation camp was winning. Now, the inflation camp is winning.

In this match between deflation and inflation, who will win? That is the prime question the bond market is struggling with: right now, this is the story of the hurricane of inflation expectations – but that could change as we work our way through our economic issues.

Mark