You can't go anywhere these days without bumping into an argument about the bond market. For a while now, observers have been pointing out that the declining yield on the 10-year U.S. Treasury bond was flashing trouble about the economic recovery (prices are going up!), even as the stock market suggested good times ahead (prices are going up !).
It is unlikely that both markets are right, which is what drives the argument and makes it so fascinating. Here are a few snippets I've stumbled upon recently (with a hat tip to Humble Student of the Markets).
Barry Ritholtz, The Big Picture: "My disdain for the efficient market hypothesis came about by observing the difference between the stock and bond markets. It was apparent that the fixed income traders were of a 'rational' mindset so often lacking in the equity world. Indeed, I have frequently called bonds the market that acts as 'adult supervision.'"
Evan Newmark, Wall Street Journal: "But the Treasury market is now acting like any speculative market. Forget fundamentals. Buyers are buying into it because prices are going up. The 10-year Treasury isn't a '10 year' instrument. It's a 'high quality' piece of paper that gives a little extra yield. Hold it today. Flip it tomorrow. And just what happens when a GDP number comes in hotter than expected and there is no one to flip it to at a higher price? Ask the investors who were buying Yahoo!, a 'high quality' Internet stock, at $108 in late 1999."
Buttonwood, The Economist: "[The]bond market is surely betting that the Fed's actions won't work and that Japan is the template; the equity market is betting that the Fed will be successful and the Goldilocks economy will return."
Michael Santoli, Barron's: "It's for good reason the stock market was dubbed 'the bond market's idiot kid brother.' Clearly, at minimum, the 10-year yield at these levels reflects the general reduction in U.S. growth assumptions, both about last quarter and the second half of the year. Yet there is probably more going on here than bonds reliably pricing in another economic contraction that would upend stocks. There's even a chance that neither stocks nor bonds have the outlook wrong. The argument between the two asset classes might instead be a subdued and agreeable discussion."