The meaning of 3% Treasury-bond yields
ROUND numbers would be irrelevant if investors were rational. But they are not. This week the ten-year Treasury-bond yield passed the 3% threshold for the first time in over four years and investors shuddered. Their worry is that the long downward march in yields, which began in 1982, may at last be over. Is it?
That question is not of interest just to bondholders, for whom higher yields mean lower prices. Government-bond yields set the benchmark for the borrowing costs of companies and consumers. When they rise, the weakest companies and the most indebted consumers are likely to get into difficulty. If the cost of government borrowing rises, it becomes harder to finance budget deficits. Politicians may be forced into cutting spending or raising taxes. If the breaching of the 3% threshold were to presage an abrupt rise in yields, there could be trouble ahead (which is why stockmarkets wobbled this week). Yet a bond-market bloodbath seems unlikely.
It is no surprise that bond yields...