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Why 5% bond yields could wreak havoc on the market
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Bond market s newfound economic optimism may be shortsighted
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In recent weeks, U.S. bond markets have bought into the prospect of a "soft landing," prompting some investors to question whether they are ignoring the risk that companies will run into trouble in a higher-for-longer interest rate environment. Corporate credit spreads, which indicate the premium investors require to hold companies' bonds over safer government paper, have tightened in a sign that investors have come to believe the U.S. Federal Reserve will manage to bring down inflation without causing too much economic pain. Curbing inflationary pressures could take time and lead the Fed to keep interest rates high for longer than investors believe.
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