The bond market is repricing the federal government’s fiscal folly. Congress knows it can’t touch the middle class and has no ideas about how to help them other than growing the debt–and it’s headed for a bad outcome thanks to bond vigilantes. The 30-year Treasury yield closed at 5.62% on September 30, territory last seen in 2002. The 10-year sits near 5.3%. The consequences for the budget are severe. Interest on the national debt reached $857 billion over the first nine months of the fiscal year, more than the government spent on Medicare or national defense. Before Washington responds, it should understand what the market is really saying.
One possible explanation is that investors are losing faith in the dollar. Gold has more than doubled in two years. Commentators talk of a “debasement trade,” in which bondholders flee paper claims ahead of expected inflation. On this view, rising yields and record gold prices are two symptoms of the same disease: Uncle Sam printing dollars to cover its debt.
