In early October, longer-term Treasury-bond yields crossed the proverbial “line in the sand” in the eyes of some bond observers. In just three days, the 10-year yield soared from 3.05% to 3.23%, reaching its highest level since 2011. The 30-year jump was similarly dramatic, from 3.20% to 3.40%, a new five-year high.

The immediate cause of this bond yield surge was stronger-than-expected economic growth, coupled with Fed Chairman Jerome Powell’s comments that interest rates are “a long way from neutral” — with the clear implication being that more rate increases should be expected.

But the real backdrop goes beyond these recent events. For most of the past decade, the Fed and other global central banks have purposely pushed interest rates down to historic lows and held them there. Only recently have these rates been allowed to begin their rise back toward “normal” market rates. While this normalization of interest rate policy is a good thing overall, the swift and brutal reaction of stock market investors showed why significant concerns exist regarding the impact of this normalization on the future prices of financial assets.

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