The week ahead

Tom Hudson: All eyes on bond market


Special to The Miami Herald

What will happen with the bond market at the 2 percent threshold?

Until late May, investors were willing to lend money to the U.S. government for a decade and get less than a 2 percent return on their money.

But with the Federal Reserve thinking of providing less help to the economy, bond interest rates jumped over the 2 percent level to their highest levels since April 2012.

The week ahead will be quiet from the Federal Reserve ahead of its meeting later this month.

The silence means the bond market will be left to trade on its own merits.

When that has happened over the past year, it has led to bond buying, pushing interest rates below 2 percent.

Billions of dollars have poured into the bond market as investors have looked to ensure the return of their money instead of a return on their money.

As large and as noteworthy as the stock market rally is, the bond market is a monster lying in wait.

A sharp spike in interest rates is not what investors nor the economy wants.

It would mean the value of government bonds are falling and there has been a sudden change to the central bank’s years-long effort to kickstart the economy.

Meantime, the inverse, a big drop in rates and subsequent rally in bond prices, is not a symptom of a healthy economy.

It is a sign of fear and faith.

Fear the economy is not getting better.

And faith in the Federal Reserve’s willingness and ability to continue to buy billions of dollars in bonds each month.

Tom Hudson is a financial journalist based in Miami. He is the former co-anchor and managing editor of Nightly Business Report on public television. Follow him on Twitter @HudsonsView.

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