Bonds Away

The collapse move is the yield curve steepens. The bond market is betting on, more than anything else, a decline in inflation. The Fed-believers (watch The Skeleton Key) expect a "policy error" caused by too much tightening. I think the error was already made in March 2020 and continued through March 2022. The economy, stock market and/or prices will crash no matter what the Fed does, but the bond market is pricing in a very specific error that comes with lower inflation. If instead the bond market is wrong and has the curve all wrong, then all hell will break loose. Rising yields will crush corporate margins, weaken household and government balance sheets. The moment of recognition will be when the 40-year trend in lower yields is broken. The macro case for the former being correct is still in place. The charts are starting to argue for the latter, but the trendline break is still a ways off. It will take the 10-year breaking through 2.80 percent by May. Unlikely, but it would only require carrying through the move underway since the start of March.