The lower bond yield is a signal to the weakening economy and...

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monty11

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17/12/21

19:15

Post #: 58376186
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Originally posted by AverageJoe: ↑

What is the bond yield signalling? So under QE, Feds buys a lot of multiple dated bonds pushing the price higher or yield lower. If they now say they are going to taper in quicker time and rate, why is the bond prices still higher or the yield dropping?

I am wondering if the market thinks this inflation pressure is not a result of a US economic recovery but a product of furlough, easy money and a restricted product availability to purchase? Too much money chasing too few goods, price usually spikes.

The Nasdaq had a massive fall last night, something I was expecting from FOMC quick time taper but the initial reaction was surprising. Is last night the digestion that more expensive money will impact profits on Tech most of which are unprofitable with a huge PE multiple or rather huge price-sales multiple? I think the Feds would like to temper inflation by QT but the bond holders are not convinced this hawkish move is sustainable for a US economic recovery.

If the stock markets keeps falling together with yield, it will then implies QT isn't sustainable reverberating to taper tantrum or something worse.

If my thesis on the above is correct, it also helps explain why gold rallied up strongly in sympathy since gold favors a cheaper cost of money condition as opposed to the inflation hedge. This QE revolution tool I still think has no allowance in textbook economic theory.

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The lower bond yield is a signal to the weakening economy and imagine if the Fed raises rates while the curve is inverting it will create a mess for the markets. Next few months will be critical.

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