Bond yields spiked. The stock market threw a tantrum. Reuters analyst Dhara Ranasinghe called it “a tussle over borrowing costs.”
The Fed won round 1, thanks to a little help from the Aussies.
But even the mainstream seems to have noticed that this wrestling match isn’t over and the Fed may be forced to take real action soon.
As Ranasinghe put it, “Round Two, and perhaps even Round Three, are inevitable, and they may require policy action rather than just words.”
By policy action, they mean upping quantitative easing – exactly as Peter Schiff has predicted.
The bond market got clobbered on Friday. As prices fell, the yield on the 10-year Treasury pushed as high as 1.61% and the 30-year hit 2.4%. These rates aren’t high by historical standards, but Peter said it was one of the biggest interday moves in the bond market that he’s ever seen. Up to that point, stock markets hadn’t reacted much to rising interests rate, but on Friday, they sat up, took notice, and threw a tantrum. The Dow dropped some 480 points.
The bond market bloodbath on Friday is part of a larger trend. Yields have been pushing upward for weeks. Conventional wisdom tells us that this is due to a quicker than expected economic recovery and this may force the Fed to tighten monetary policy sooner than expected. This is precisely why we’ve seen the big selloff in gold. A lot of people actually believe the Fed is going to reverse course on its monetary policy.