Economics Weekly: Message in a Bond Yield

Friday, March 5, 2021

The speed of last week’s sell-off in the bond market was disconcerting for many. Financial markets are already jittery about high equity market valuations, and this exacerbated those fears as well as those about the potential for overdoing it on the stimulus front, leading to questions about debt sustainability and inflationary pressures.

In this Economics Weekly, we dissect the bond yield into its component parts to see what was driving the increase. The deconstruction shows that this sell-off was less about inflation and more about the market re-rating the yield to reflect much stronger expected economic growth.

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Richard de Chazal, CFA is a London-based macroeconomist covering the U.S. economy and financial markets.

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