Reply to What would a US bond market crisis look like?

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[quote=Anonymous][quote=Anonymous][quote=Anonymous]Bond yields rise and dollar falls. Inflation increases. At that point it depends on the fiscal policy response. Higher yields increases government borrowing costs and hence the deficit. If they take credible action to contain the deficit then the situation stabilizes. If not we enter a negative spiral that involves the same elements of rising interest rates, spiraling deficits, falling dollar, increasing inflation etc.[/quote] This is  the theory, but present day reality is the opposite as far as bond yields go. Even w/ the “big beautiful bill” expected to add trillions to the total debt, rates are lower compared to Jan. 1. There is no panic in the bond market. Go figure. [/quote]

I suspect that it means that the market doesn’t think the bill will be passed as is. There is also some move to bonds as nervousness about equities persists. Look at how the cost of credit default swaps on US government debt have increased for evidence that all isn’t well in the bond market.

But I don’t disagree with you. The point is that it is an unstable equilibrium. Once things start moving, they could move quickly.[/quote]

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