I. Bonds
The Economist just rang the all-clear siren for the bond market (chart). It is safe to buy bonds now that the front cover of the October 10 magazine is titled "Will bonds blow up?" This and other national magazines’ cover stories often have been great contrary indicators. It’s the “front-page curse” (once magazines put in the time it takes them to produce a cover article on a financial market trend, investors have moved on).
We think the 10-year Treasury bond yield is back to normal this year, i.e., in the 4.00% to 5.00% range (chart). We've disputed the widespread notion that "interest rates are likely to remain higher for longer." That implies that they should come back down at some point. We've argued that "interest rates are likely to stay normal for longer." They were abnormally low between the Great Financial Crisis and the Great Virus Crisis, when central banks rigged the fixed-income markets with zero and near-zero interest-rate policies and quantitative easing.
As bond yields rose in recent months to the top end of what we consider the normal range, we expected buyers to be attracted by higher yields, so we expected the range to be maintained (that’s what happened in in 2023, when the yield spiked to 5.00% in late October). This time, the yield spiked above the normal range, to around 5.25% (as it did during the 4.00%-5.00% normal-range period from 2002-07).
