A “Scary Thought” From Richard Breslow: “What If Bond Yields Were Right All Along?”

With global stock indices – and the S&P – both just shy of all time highs, even as bond yields stubbornly refuse to validate the “equity upside” story, Bloomberg’s macro commentator Richard Breslow, looking at recent yields and spreads writes that “in reality, these spreads just can’t be doing what they’re doing if the tapering and rate-hike stories were truly being given credibility” and has a troubling thought: “what is bond yields have been right all along”?
If that’s the case, “what we are actually seeing is the re-emergence of that horrible construct, which apparently never went away: ‘Bad news is good news.’ That would mean that “the Fed, and everyone else, had better hope that we begin to see wage inflation creep, not leap, higher. That non-employment related inflation stays away. And we have a long period of slowly rising rates with objectives higher, but not dramatically so.” Why? Because “that’s about the only scenario that ends as well as promised.”
He explains his concern in his latest overnight Trader’s Notes:
Worry That Bond Yields Have Been Right All Along What if we’ve been seeing what’s going on and have consistently, and over-optimistically, misinterpreted the cause? That’s a really scary thought if the trades you contemplate are based on the effect without a proper understanding of the actual drivers influencing the investing environment. It may be a reality that unrepentant bond bears have to consider.

This post was published at Zero Hedge on Aug 4, 2017.