The bond market is saying what we're all thinking

Bulls have been gloating all summer long that the disastrous downturn many once feared still hasn’t shown up.

But while equity traders are plugging their ears and defiantly singing lalalala as they push stocks to new heights, worries about inflation, an economic slowdown, and the mounting fiscal deficit are rattling a different corner of the global financial market: bonds.

The yield on the 30-year Treasury briefly touched 5% today, its highest level since July. And it wasn’t just US fixed income that’s seeing a selloff (keep in mind, bond prices move inversely to yields): Yields for Japan’s 20-year and 30-year bonds jumped, as did yields on long-dated English, French, and German government bonds.

Zoom out: For a while now, experts have warned that long-term bond rates will rise given the staggering amount of debt that wealthy nations, such as the US, have amassed. And that’s on top of President Trump attacking the Federal Reserve’s independence, which makes bond investors question whether the central bank can keep inflation in check. Not to mention the power of the dollar waning, putting even more pressure on US government bonds.

There’s another factor, too: tariffs. Back in April, yields on government debt skyrocketed after the “Liberation Day” fiasco, given that economists predicted that tariffs would lead to inflation, which would subsequently lead to high interest rates, which would therefore make long-term investors less bullish on the US.

But a ruling late last week that Trump’s tariffs are illegal is also pushing yields up, given the government will no longer have the funding from high levies to make up for its steep fiscal deficits.

Why should you care?

We get it—the yield on the T-bill isn’t quite as flashy as Google, Nvidia, or crypto. But setting aside the fact that bonds are an integral part of a well-balanced portfolio, the Treasury market is a high-level indicator of how investors are feeling about the US economy. And it’s never a good sign to see investors losing faith in government debt across the world.

That said, there is opportunity to be had for investors searching for steady yields. “Fixed income broadly offers attractive yields and is again proving its worth as a ballast in portfolios amid ongoing volatility,” explained Chief of Investment Strategy & Research Jason Pride.

But as people get bearish on government debt, the gold medal belongs to gold. “I'll say for the umpteenth time, you must keep your eye on long term bond yields because they are moving higher again and gold continues to be the biggest beneficiary of the push back against excessive debts and deficits as it is at a record high, also taking up silver and platinum,” wrote Chief Investment Officer at Bleakley Financial Group Peter Boockvar in a note yesterday.—LB