Sunday, October 29, 2023

The Return of the Bond Vigilantes

The bond market is sending a message to Washington; get your act together. 

It looks like Wall Street is no longer willing to look the other way at the habitual dysfunction and fiscal profligacy in the nation's capital. With the national debt now exceeding $33 trillion (not including unfunded future obligations) and Congress paralyzed by partisan bickering, investors are no longer prepared to lend the US Government their money at dirt cheap interest rates. The yield on the benchmark 10-year US Treasury bond has been flirting with 5% for most of the last week. That's the highest it's been since 2007. As the route in the bond market continues, with its potential to spook stock investors, the threat may go beyond the much steeper costs of borrowing by the Federal government. It is starting to effect interest rates for mortgages, car loans, credit card debt and borrowing money by businesses and state/local governments. In other words, if DC doesn't take steps to calm the bond market, it could start to affect the broader economy. 

CNBC's take.

On the other side of the debate, Warren Buffet disagrees. He thinks US government debt remains relatively risk free and current yields are attractive, especially for longer term investors. 

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