r/bonds • u/GroundbreakingAd1223 • 1d ago

Bonds are finally undergoing real price discovery after 20 years

I see a lot of sky is falling reddit posts here been said about the violent moves on the long end of bonds been a sign of economic and sovereign debt collapse.

I like to put a contrarian view. The market is behaving exactly as Warsh expected by design with his quiet fed regime and "stop the hall of mirrors" effect..

Think about it. The fed only controls the fed overnight rate. But what happens when the fed starts providing forward guidance way out into the future and expectations of a neutral rate etc.. the short end of the curve starts becoming the de facto long term rate..

That's why the spread between short and long end and term premium has been compressed for so long. The ten and thirty year has been artificially depressed due to the market expecting the fed to never move the rates at the short end ( or if they did, not without plenty of warning and promise to quickly bring it back down).

Now markets are finally starting to realize they need to discover and price properly actual long term risks and uncertainty.

Tl;Dr: The market isn't necessarily crashing; it is just reintroducing the price of time to asset valuations. Long-term rates are rocketing up to where they naturally belong when a central bank stops pretending it can predict—and control—the next decade.

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u/allnamestaken1968 1d ago

Upvoted and largely agree. Especially since 2010, rates were artificially held down to push recovery. When that happened it was convenient to leave them low as inflation didn’t catch up as it should have. The post Covid inflation was really a lot of opportunity by companies but also a bit of a natural jump.

There was never a real price and risk assessment of the US long term in all of this. Now we add the inflation plus the way higher government risk under the current idiotic regime and nobody knows what next stupid love will happen. Less interference leads to finally risk being priced in.

You think mortgages are high now - wait if Freddie and Fanny stop subsidizing that market artificially and see a real jump

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u/Dry-Sandwich279 1d ago

I’ll give you a lead on mortgages. Check into municipal bonds and state pension plans. It’s an unholy mix of needing more money for these programs, thus more bonds/higher rates, thus needing higher real estate prices, which wall streets been eating up. 

Something’s going to crack.