Bond-Market Mayhem

Bond traders can be a perverse group. A whiff of economic recovery had Wall Street pushing bond yields skyward (and prices downward) even before last week's report that GDP grew at a surprisingly strong annual rate of 2.4% in the second quarter. Now even stronger growth is widely expected the rest of this year. Since the middle of June, the yield on the benchmark 10-year Treasury bond has surged to nearly 4.5% from 3.1%--a staggering reversal that is shutting down mortgage refinancings and forcing up business borrowing costs. If the trend persists much longer, these higher rates could hold back the very recovery they are anticipating, raising the specter of deflation once again — and, say some, could make bonds a bargain again.