Market Manias Galore, But Long-Term Interest Rates Smell a Rat, by Wolf Richter

The rise in long-term interest rates reflects the humongous supply of US treasury debt hitting the market, the inflationary expectations engendered by the Federal Reserve’s monetization of that debt, and the fact that most market participants implicitly believe that rates that have stayed down for so long will stay down forever. From Wolf Richter at wolfstreet.com:

These manias and the rising long-term interest rates are on collision course.

Everyone can see what’s going on: speculative manias everywhere. This includes the most worthless delisted stocks of companies that had no activity for years that suddenly surged several hundred percent in hours, driven by pump-and-dump schemes in the social media, before re-collapsing.

And it goes all the way via real estate, junk bonds, the most-shorted stocks, cryptos, and well, sneakers, to the newest thingy, so-called NFTs, or non-fungible tokens, that are now being hyped to high heaven.

But facing these manias are long-term US Treasury bonds and high-grade corporate bonds that have been getting crushed for months – as their yields have surged.

For example, the bond market ETF that tracks US Treasury bonds with maturities of 20 years or more with the ticker TLT – its shares are now down 20% since early August last year. When prices of bonds drop, by definition, their yields rise.

A 20% drop in share price of what is promoted as a conservative investment in US government bonds is a big step down.

The Fed has bolted down short-term interest rates pretty well. They’re near zero and haven’t budged.

But long-term interest rates have been rising for months. The 10-year Treasury yield on Friday rose to 1.63%, the highest in over a year. Since August, the 10-year yield has more than tripled.

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