Why Bond Traders Have it All Wrong

Michael LebowitzAdvisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.

This is part one of a two-part series. Part two will appear next week.

“China, Japan, inflation, deficits, and QT, oh my!” – The chant of bond traders watching yields creep higher.

Despite the highest yields in 15 years, some bearish bond traders think they can go much higher. In their minds, China, Japan, burgeoning fiscal deficits, inflation, and QT, are tailwinds for much higher yields.

I have written several articles explaining why entrenched long-term economic growth trends and low inflation, coupled with high and increasing leverage, all but ensure lower interest rates. This article defends my thesis and helps us better appreciate the bearish concerns weighing on bond traders.

As the quote below from Peter Atwater states, the "easiest explanation" is usually the most popular, but that doesn't make it correct. The concerns I cited make for good headlines and may temporarily affect bond yields, but are they worthy of much higher yields?