May 22, 2025
By Peter Bower
The Bond market is King. It is much larger than the stock market and sets interest rates. These can influence whether economic growth is encouraged or discouraged. Business health and activity determine profit potential, and profits are a major factor by which companies are valued. The level of rates also helps set the earnings multiple for stocks. Higher rates mean a smaller multiple and vice versa. So, when the bond market is unhappy, most everything else is too.
The bond market has been showing concern. Inflation is still not entirely tamed, and Congress may be ushering in a new budget that expands our country’s debt. More debt and more borrowing to fund spending money we don’t have; therefore, it is understandable that bond investors are increasingly reluctant to buy bonds. So, interest rates go up to entice buyers, resulting in an increasing drag on economic growth.
How far will this go? So far, the bond market has been able to find buyers for all the new issuance of debt. This is likely to continue because there is so much money around, and bonds, especially short-term ones, are one of the few safe havens around. So, no crisis yet, but keep an eye on the bond market. In the meantime, stay steady, my friends.
-The Lonely Bull
