Bond Market Signals Nervousness and Potential Economic Slowdown

The bond market's inversion, where short-term yields are higher than long-term yields, indicates nervousness about an impending economic slowdown. This could be due to muscle memory from past economic problems when the Fed lowered rates to zero. However, there is room for the Fed to cut rates further if the economy slows significantly. Higher yields are predicted, especially in the long end, as the bond market settles around 5% nominal GDP growth. Market complacency about low long-term yields needs to be challenged, as yield volatility is expected.