Stockholm Syndrome

The unhealthy symbiotic relationship that exists between Central Banks and the Capital Markets is starting to become more and more pronounced. We might even hint that there are distinct signs of Stockholm syndrome at play, the only problem being we are not sure who is the captor and who is the hostage. This blurring of the lines between whom is beholden to whom has accelerated of late, particularly as it relates to the yield curve and the latest tax reform bill. Typically, we would see some kind of Treasury or Fed response to such a blatant deficit-blind package, but in fact the Fed and the “bond market vigilantes” have chosen to leave their pitch forks at home. One would have expected more than a 20 bp rise in Treasury rates with such an imbalanced tax package, particularly in light of continued steady global growth.