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1. people start to allocate a few percentage points less to bonds

2. governments and corporations which run deficits need to issue more bonds to fund themselves

3. interest rates need to be higher on the bonds to attract more buyers

4. previously issued bonds decline in value since new bonds are being issued at higher rates

5. portfolios on bonds decline even more as interest rates increase

6. people allocate even less of their portfolio to bonds

7. interest rates on new bonds must be higher

8. bond portfolios decline even more
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Stephan Rinbaum 2y ago

See "1980's". Rates rose to as high as 14% on US Treasury debt, the Fed Funds rate went as high as 20%,

The markets survived then, but the USG balance sheet was far different. The deficit was only 34% of GDP. Even so, the recovery included the biggest one-day market crash in history, a savings and loan crisis that closed hundreds of small banks and a recession even after both of the other events.

The deficit is now 123% of GDP. If we're lucky, the recovery will be only four times more difficult than it was in the 80's. If we're not, there won't be a recovery.

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