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Yellen’s Take on the Historic US Bond Dive

In the world of finance, soaring borrowing costs can send shockwaves through the market, leaving investors scrambling for clarity. In such times, words from key economic figures can either soothe or intensify these market jitters. Step in US Treasury Secretary Janet Yellen, who recently shared her perspective amid what some are calling the most significant bond bear market in US history.

Speaking from Marrakech during the annual IMF and World Bank meetings, Yellen addressed the elephant in the room: the significant sell-off in Treasury bonds that led to yields touching their peak since 2007. Her take? Business as usual. “I haven’t seen any evidence of dysfunction in connection with the increase in interest rates,” she commented. While rate volatility can influence market function, she suggested this is par for the course.

Now, to put things in perspective, the numbers are quite telling. Since March 2020, long-dated Treasurys have seen a sharp 46% dip, with the 30-year bond diving 53%, as per Bloomberg’s metrics.

One could argue that last week’s robust jobs report added fuel to the fire, leading the 10-year Treasury to momentarily surge to 4.9%. With such strong employment figures, it’s understandable if one anticipates the Fed to push benchmark rates even higher. However, Yellen views these figures as commendable, yet not indicative of an excessively hot labor market. “What could be a problem is if we saw the labor market overheating, but I didn’t really see evidence here of that,” she noted.

Reflecting on potential bank failures reminiscent of the spring, Yellen’s outlook remained positive. She praised the credit quality as being “very solid” and appreciated measures taken by vulnerable banks, such as reducing uninsured deposits to avoid potential runs. As for the households and businesses? In Yellen’s eyes, the rate hikes don’t seem to be unduly pressuring them.

For the entrepreneurial and investment communities, Yellen’s measured and calm perspective serves as a beacon in tumultuous times. It reminds us that markets ebb and flow, and what’s crucial is to analyze the broader context, stay informed, and strategize accordingly.