Steve Hanke warns that the bond market is the only asset class correctly pricing risk as yields rise.
Steve Hanke, a Johns Hopkins economist, argues that the bond market is currently the only major asset class pricing risk with discipline, while equity markets remain in a state of 'stock market mania' driven by AI hype. Hanke notes that the bond selloff is a result of a 'deadly cocktail' of factors, primarily driven by monetary growth exceeding the Federal Reserve's 2% inflation target. He observes that the bond vigilantes have emerged from hibernation to punish reckless fiscal policy, pushing yields past the informal red line defended by Treasury Secretary Scott Bessent. Hanke predicts that the 10-year yield could climb another 50 basis points, remaining bearish on bonds for the foreseeable future. While he acknowledges that while the equity bubble may eventually deflate, he believes the rising long-term rates will gradually let air out of the stock market. He also dismisses the idea of a 'quiet default' by the United States, maintaining that the U.S. dollar remains the dominant international currency despite various de-dollarization narratives.