For now, the bond market has been clear in its message: inflation is not the pressing issue. Markets appear to be more concerned about economic growth.
US real yields have fallen deeper into negative territory despite unprecedented fiscal deficits. But servicing the debt will occupy an increasing portion of the economy over the coming decades.
The bond market has concluded that there is a more permanent role to be had for Central Banks in financing governments and taking a more direct control over the direction of the economy.
This may be necessary to keep debts on a sustainable trajectory (interest payments returned to Treasury), and to tackle mounting climate change risks.
Indeed, recent extreme weather events have brought climate change sharply back into focus.
Investors are betting that the Fed, and other global central banks, will ultimately have to underwrite the green energy transition.
