Convulsing bond markets mean different things to different people. If you run a government, it is plainly bad that government-borrowing costs are shooting up—as they are across the world. The yield on Japan’s 30-year debt has shot above 4%, its highest ever; America’s has topped 5%; Britain’s is chugging fitfully towards 6%. Since mortgage rates tend to move in line with these yields, anyone looking for a new one will also feel the pinch. For bond traders, in contrast, the past few weeks have been quite the thrill. A decade ago near-zero interest rates seemed to have permanently shoved their market into the deep freeze. Now it is red hot.
It is not hard to see why. Inflation and yawning government deficits have worried investors for years, and the Iran war is making both problems worse. Bank of America conducts a monthly survey of global fund managers; in the latest, 40% of respondents said an inflationary wave was the biggest tail risk for markets. Despite this (or in explanation of it), 78% expected America’s Federal Reserve to either cut rates or leave them unchanged over the next year. They have acted accordingly, slashing holdings of cash and bonds, while raising their equity allocations by more than in any other month of the survey’s 25-year history. This is just what you might do if you think money is too loose.