The end of an era, any era, is signaled by a loud "bang", some sort of obvious event that makes clear to one and all that times have changed - assuming they are listening. In financial markets they say "no one rings a bell" to signal the end of a bull (or bear} market - but that's absolutely wrong. If you pay attention and do not get distracted by the surrounding cacophony, you always hear the "bell".
US Treasury bonds have enjoyed a stellar ride for a full 40 years. After reaching a stratospheric 15% in early 1981, yields for the 10-year bond have been on a steady and constant downward slope - until 2020 (Chart 1). That's when the bell "rang": a combination of panic and central bank interventions caused yields to fall off a cliff to 0.5% - and then rebound sharply. The chart is in log scale, making it easier to see the massive departure from "normal".
The interesting thing about "bells" is that they are always denied, disputed and very often ridiculed by "experts". The reason is simple: too many people have been lulled into complacency and too many vested interests have accumulated over too many preceding years, when "the trend was your friend". (As an example from history, the seemingly sudden collapse of the USSR was signaled years earlier by its ruinous campaign, defeat and ignominious withdrawal from Afghanistan.)
The good thing about markets, when allowed to perform freely, is that they distill every bit of available information and turn it into action, plain for all to see. So, what is the above chart telling us?
- A reversal to the existing downtrend should bring yields back to at least 3%, almost double today's 1.66%.
- The departure from trend was so sudden and extreme and the rebound so equally abrupt, that it is highly unlikely that we will experience lower rates any time soon.
- The V-shape in rates is now accompanied by the largest ever increase in money supply and government debt, plus a sharp spike in commodity prices.
- The Fed and Treasury are in rare concurrence, both trying to convince the market that monetary and fiscal profligacy are inconsequential - but, it's not working. Talk is cheap - worthless, actually.
- Bond yields are still well below current and projected inflation, i.e. negative real interest rates. It makes zero sense for any real money investor (eg pension fund) to assume the market risk of owning long bonds.
IMHO, therefore, the confluence of events is a clear and loud "bell" that interest rates have bottomed out and are very probably going to be going up for a protracted period. The Era Of Cheap Money is over.