If gravity is the most powerful force in the universe, the bond market might just be the runner-up.
Towering over the stock market, the global bond market is estimated to be over $130 trillion, compared to the U.S. stock market’s $50 trillion.
Yet, for many people, the bond market is an afterthought, overshadowed by the stock market, which is the usual focus of 401(k) and IRA retirement plans.
As the film director Oliver Stone told us, “Money Never Sleeps.”
Money flows across the globe at the speed of electrons, constantly chasing the highest returns. But why should that matter to someone in Santa Clarita?
Let me bring it home.
The bond market dictates long-term interest rates, and in doing so it decides how much we pay for a mortgage, auto loan, credit card interest (assuming a person carries a balance) and virtually every purchase we make.
Even the recently much-discussed price of eggs can feel the bond market’s effect if poultry farmers need loans to fund their operations.
The 10-year U.S. Treasury note is the benchmark for interest rates. As I write this letter to the editor, the 10-year note is hovering around 4.532%.
If the bond traders believe the national deficit is set to grow, they will demand higher interest rates to buy U.S. Treasury bonds. This could ripple through the economy, making borrowing costlier and driving up prices for consumers.
Any business that needs to borrow money will pay more to fund their operations and likely pass the extra expense to consumers.
In short, the bond market holds the reins of our financial lives in ways most of us rarely consider.
Philip Wasserman
Stevenson Ranch
