Are you keeping an eye on the long bond market?

October 2023

Are you keeping an eye on the long bond market? Even if you’re a generalist or an equity investor, perhaps you should be.

The US 10-year bond has been weak, recently breaching the headline 5% yield threshold. This matters for two reasons. First, it’s the market indicating that a higher cost of capital across the board is not as “transitory” as many had hoped. Second, over the last decade of cheap money, many investors have flocked into increasingly crowded trades and many market participants have taken on ample lashings of leverage. Bond price weakness piles pressure on both – and any uncontrolled rush to the exit would be extremely painful.

Hopefully, the long bond market issues unwind quickly and smoothly. But sometimes it pays to be prudent, not hopeful.