The World’s Most Important Market Sends a Warning
US Treasury securities have no ideology, which is why the signal they’re sending about faster inflation ahead is so worrisome.
Eggs show what’s ahead.
Photographer: Adam Berry/Getty Images
Financial markets are neither ideological nor do they have an agenda. They're dispassionate observers, indispensable for helping to discern whether assets are cheap, expensive or fair based on current and historical relative values. So it’s worth taking notice when the $30 trillion market for US government securities - the one that guides every other and helps set the cost of money worldwide – is sending an alarming message about the outlook for inflation.
For all the criticism the Federal Reserve received for being “behind the curve” in the aftermath of the Covid-19 pandemic, US Treasuries never failed to signal elevated inflation rates would recede under President Joe Biden. And they did, with the Consumer Price Index falling faster than at any point in modern times, to 2.4% in September from a peak of 9.1% in June 2022. The bond market essentially validated the assessments of former Treasury Secretary and Fed ChairJanet Yellen and former Secretary of Commerce Gina Raimondo (highly credentialed economists in their own right) that the abrupt cost-of-living increase in 2021 reflected “a combination of supply and demand shocks, not excessive monetary stimulus.”