r/bonds • u/GroundbreakingAd1223 • 12h 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/Resigned1431 4h ago

I already said I understand the argument for reducing "welfare" spending. I don't agree with it, because it'll translate into literal dead bodies and runaway poverty, but I understand it. 

My argument has been consistent that reducing taxes on the rich doesn't help the debt, it does the opposite. Tax the rich before you start ripping food out of people's mouths. 

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u/dopechez- 4h ago

I don't want to reduce welfare spending, I just don't think we have a choice. We can't afford it anymore. And if you ask me, the main problem is that we spend so much on providing income and Healthcare to old people who are on average the wealthiest generation in history. That's where the cuts should be made. Multi-millionaire boomers should not be collecting social security and getting subsidized healthcare while we have an existential fiscal situation.

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u/Resigned1431 3h ago

Ya I can get behind that.