Back in the 1970s through the 1990s, bond traders had a lot of influence on public policy. If they saw even a rumor that someone in Washington was planning something that might push inflation higher, the vigilantes sold bonds. Interest rates rose, and the policymakers backed off. The bond vigilantes disappeared for most of the 2000s, but this article interviews the original bond vigilantes. He says he sees signs that some successors are rising in the bond markets.
The 10-year break-even rate, calculated from the difference between yields for nominal and inflation-linked bonds, reached 2.15 percent last month, the highest since 2014. Traders already wagering the Federal Reserve will increase rates three times this year are beginning to position for the possibility of a fourth. And of course, two-year yields have breached 2% for the first time since 2008, while 10-year yields are on the cusp of 3% for the first time in four years.
Analysts, in turn, are reexamining their 2018 yield forecasts. JPMorgan Chase & Co. last month lifted its year-end calls for the 2- and 10-year notes to 2.95 percent and 3.15 percent, respectively, from 2.7 percent and 2.85 percent. Strategists from Goldman Sachs Group Inc., Bank of America Corp., Deutsche Bank AG, Toronto Dominion Bank and BNP Paribas SA have also made upward revisions this year.