The bond market sold off. Rates went up. Traders who spent the last decade convinced that zero percent was a human right now face the terrifying prospect of math working the way it always has.
Governments issued too much debt. Oil prices spiked. Inflation returned like your uncle at Thanksgiving who nobody invited but somehow has a key. The shocking twist: lending money to broke governments at negative real rates was not a sustainable business model.
Here's who pays the price. Pension funds that assumed 7% returns in a 2% world. Real estate investors who bought everything with leverage because debt was free and consequences were for renters. Every dipsh*t who refinanced into a 30-year mortgage at 3% and immediately took out a HELOC to buy a boat named Tax Deduction.
Bond vigilantes are back. They left for fifteen years. Central banks said they'd handle everything. Turns out printing money to buy your own debt makes people nervous once you stop printing.
The technical analysis here is simple. Price goes down when nobody wants to buy. Nobody wants to buy when the return is three percent and inflation is five. First-graders understand this. Bond fund managers with MBAs from Wharton somehow missed it.
Retail traders bought long-dated Treasuries in 2021 because a guy on YouTube said rates would never rise. That guy now sells a course on commodity trading. The Treasuries are down forty percent. The course costs $497.
Higher rates mean debt costs more to service. Countries that borrowed in their own currency will inflate it away. Countries that borrowed in dollars will default and blame colonialism. Both groups will continue issuing bonds. Somebody will buy them. That somebody went to business school and works at a pension fund in Ohio managing your parents' retirement.
The era of free money ended. The era of moderately expensive money began. Traders are calling this a crisis because they have to actually evaluate risk now instead of just buying whatever yielded more than cash.
Photo by Brett Jordan on Unsplash
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