Bonds are being heavily sold off. (Reminder: yields rise as prices fall)
It's because of :
- the Iran war, and its effect on oil prices and inflation.
- ballooning US deficits
- concern that the Fed won't fight inflation
- Japan's economic unravelling
- stubborn inflation, not just in the US, but in Europe and elsewhere.
- the beginning of Central Bank tightening.
- strongly rising commodity prices — it's not just oil.
When bond yields rise, it's a signal of tightening credit. The riskier the borrower, the bigger the rise in the interest rates they must pay to obtain credit. (That's why national government bond yields haven't risen by equal amounts over the last 2 years). At some point, the elastic snaps, and companies and possibly countries start going bankrupt. Which leads, inevitably, to a recession.
The AI bubble is dependent on credit and circular financing. When outside credit flows dry up, it will pop, taking down the economy and share markets with it.
Every previous oil crisis has been followed by a recession, and the bigger the relative increase in prices, the deeper the recession.
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