Economics

This Bond Market Could Get Uglier

Buying the dips has led to quick profits, because central banks stuck with ultralow rates. This time may be different.

Illustration: Tomi Um for Bloomberg Businessweek

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By Brian Chappatta, John Gittelsohn, and Liz Capo McCormick

February 6, 2018 at 10:00 AM UTC

This article is for subscribers only.

This article is part of the February 12, 2018 issue of businessweek.

A little more than a week into the New Year, billionaire bond guru Bill Gross proclaimed the start of a bond bear market, after an extraordinary bullish run spanning more than three decades. Two weeks later, another billionaire, Ray Dalio of hedge fund firm Bridgewater Associates LP, piled on with a forecast of the worst bear market since the early 1980s.

As yields on U.S. Treasuries soared to levels unseen since 2014, Gross asked the question on many investors’ minds: Who would buy America’s debt right now? After all, the government deficit is soaring because of massive tax cuts, and the Federal Reserve is trimming its almost $4.4 trillion portfolio, which contains billions of dollars’ worth of bonds acquired in an effort to prop up the economy in the wake of the financial crisis.