The Message from the Bond Market

The bond market often provides important clues about investor expectations that are harder to discern from the daily vacillations of stock prices. Today the jump in 10-year yields has widened the spread between 2’s and 10’s to 34 basis points, moving further away from the feared inverted yield curve condition. And based upon little change in the outlook for inflation, the bond market is now anticipating stronger, more sustainable growth in the economy than it had a month ago. If the economy is generating strong non-inflationary growth, why are stock investors flipping out?