Why everyone needs to pay attention to the bond market

Governor of the Bank of Japan Haruhiko Kuroda (R) chats with European Central Bank President Mario Draghi (L) prior to the G7 Symposium entitled 'Future of the Global Economy' in the hot spring town in Sendai on May 20, 2016.
Kazuhiro Nogi | AFP | Getty Images

Home mortgages and corporate borrowing just got a little more expensive this week, courtesy of central banks in Europe and Japan.

While Wall Street is focused on whether the Federal Reserve will raise interest rates or not, rising yields in the long end of the U.S. bond market in recent sessions have been directly related to the negative yield and bond-buying policies of both the European Central Bank and the Bank of Japan.

Neither institution has taken any new action, but that is the point. This is a bond market that has become fairly complacent that new and bigger central bank easing programs will keep supplying the world with easy money at super-low rates.

Now, yields have risen suddenly to levels last seen in June, and investors are concerned that holding securities at still very low yields, and super-high prices, makes them vulnerable when central banks take their foot off the quantitative easing pedal. Quantitative easing, used by central banks around the world, is the purchase of securities in an effort to drive investors into other riskier securities and keep rates low.