All METARs are probably familiar with the history of stock market bubbles that are popped by forced selling of leveraged share holders when prices drop.
That’s not as common in the bond market but it may be happening now. The Macroeconomic impacts of forced bond selling - which pushes up interest rates - is far larger than stock market moves since bond yields impact business, household, mortgage and government spending.
https://www.wsj.com/livecoverage/stock-market-today-dow-sp-500-nasdaq-09-24-2026/card/a-vicious-cycle-of-forced-selling-is-fueling-the-bond-market-chaos-wc4G8nVXkfLyUGy1uNfT?mod=lctimeline_finance
Last Updated: Sept. 24, 2026 at 9:19am ET
Vicious Cycle of Forced Selling Is Fueling the Bond-Market Chaos
By Caitlin McCabe, The Wall Street Journal, 9/24/2026
Investors and strategists have a lot of theories on what drove the latest surge in bond yields: Higher oil prices. Comments from Fed governor Michael Barr. Data showing strong economic growth yesterday. A weak Treasury auction.
Few are denying those were contributing factors. But there was also something else behind the scenes, according to market watchers: Traders being forced out of their positions.
“The move has the hallmarks of a pain trade and forced selling by investors at these more elevated levels and could have further to run,” said MUFG Bank’s Derek Halpenny in a note today…
In recent weeks, many traders had been making a popular fixed-income bet known as a steepener, betting that the gap between short- and long-dated bond yields would widen. Instead, that gap has narrowed as traders have rapidly adjusted… [end quote]
The gap between short- and long-dated bond yields can be seen on two charts.
Historically, the Treasury bond yield curve flattens and inverts just before recession - with the major exception of 2022-2024 when the curve inverted and there was no recession.
The economic growth stimulated by AI encouraged bond traders to think that the yield curve would steepen (low yields for short-term debt and high yields for long-term debt) and they placed leveraged bets. Instead, yields in the moderate term (2 to 10 years) suddenly jumped, possibly due to expectations that the Fed will raise the fed funds rate to finally squash inflation.
The elephant in the room is the unsustainable growth in government debt. That’s more of a long-term story. Long-dated bond yields are not rising as fast as moderate-term.
The question is whether this is a buying opportunity in the 2 to 10 year time frame due to a temporary market dislocation (forced dumping). I bought a A-rated taxable muni maturing in 2030 yesterday yielding 6% to fill a hole in my bond ladder. (I never sell bonds. I roll them over as they mature.)
I’m still avoiding long-term bonds because I think their yields will eventually rise which will cause values to fall.
Wendy