The bond market is sending shock waves and Wall Street insiders are worried

Bond traders shockREUTERS/Neil HallA trader reacts on the IG Group trading floor in London March 18, 2013.

Bond yields have been shooting up for the last two weeks, and it’s brought volatility to the stock markets too.

Rising yields isn’t good news: when yields go up, prices go down. That means the bonds people already own are suddenly worth less money.

Some market watchers are blaming fund managers trying to out-trade the Federal Reserve, others, think it could be a sign of deeper problems. 

With the bond market once again posing challenges to investments, Business Insider spoke with traders and hedge fund pros about what they see happening with bonds and Treasuries, and what investors can expect next. 

  • One banker points out that if the cost of leverage continues to increase, mega-transactions between corporate players could grind to a halt. 
  • One hedge fund manager said he expects bond market turmoil to continue, up to (and, especially, immediately after) the Federal Reserve makes a final decision to raise rates. 
  • “[Last week] was one of the roughest weeks we’ve had,” said a retail advisor at one large investment bank, who was not authorised to comment on the record.
  • “Confidence is very fragile” in the bond market, one bank analyst said. “All the firms that use bonds are going to see volatility that they’re not used to.” 

Perhaps more concerning, at a conference Wednesday, former Federal Reserve chairman Alan Greenspan predicted yet another ‘taper tantrum’ when the central bank does raise rates. This, too, would not be good news for a bond market that has been volatile as of late.

Take a look at how bond yields have risen lately. This chart highlights the slight changes behind the big swings in the bond market that have so many hedge fund pros worrying right now:  

Screen Shot 2015 05 12 at 9.53.12 tracks the growth in bond yields since April

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