You can blame today's big drop in the Dow Jones Industrials
In recent months, the Dow's rise has come at the expense of bonds. The 10-year Treasury yield
But over the past two days, we've seen the bond market react differently to the Dow's drops. Yesterday, bond yields rose even as stocks fell, with expectations that the Fed would let rates rise, driving the stock market's decline. Today, though, bond yields are moving back down, presumably as investors look for safe havens to protect themselves from a stock market correction.
Meanwhile, European problems could have a direct impact on bonds. It was a poor auction of government debt from Spain that helped reawaken fears of a sovereign-debt crisis, and those problems could well persist for quite a while. Already, both Banco Santander
What's next for bonds depends a lot on how the economy plays out. A stronger recovery should boost rates. But any unexpected weakness could bring rates back down, making money for bond investors.
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