Are US bonds being driven by an “insanity premium”?

Nobel-winning economist Paul Krugman looks at the trashing of US bond prices, writing in a post titled:

“Is There an Insanity Premium on Interest Rates?”

• “increases in long-term rates, like the 10-year Treasury rate, might reflect the horrible, creeping suspicion that Donald Trump actually believes the crazy things he says about economic policy and will act on those beliefs,”

Krugman is a well-known critic of Trump (and vice versa!).

He has raised concerns shared by investors. While there is considerable uncertainty about what his policy agenda will look like,
Krugman suggests that market reactions may be tied to Trump’s statements on tariffs.

He also highlights Trump’s controversial remarks, such as not ruling out economic or military action to claim control over Greenland or the Panama Canal and referring to Canada as the “51st state.”

Krugman pointed to a “near-unanimous” consensus among economists that Trump’s proposed policies—featuring high tariffs, tax cuts, and mass deportations—are likely to drive inflation, though the effects may not be immediate.

• “Still, if he were to go through with any substantial part of that agenda, the Fed would definitely have to put further interest-rate cuts on hold. In fact, it might well feel the need to raise rates again”

I have a few quibbles ….

1. Rising long yields are not an exclusive to the US (here ya go)

2. Sure, yields have rocketed higher since the election, but its not like they are in unexplored territory

3. If its insanity, isn’t it a discount (prices plunging)?

This article was written by Eamonn Sheridan at www.forexlive.com.