Given how long the Fed has resisted adjusting its emergency measures, even just tapping on the brakes a few times in 2022 is enough to jolt nominal Treasury yields. A fed funds rate in the range of 0.75% to 1% in 12 months might only have a modest impact on the economy, but it’s a much different level than owners of Treasuries were contemplating just a few months ago. It’s little wonder that three-year U.S. yields have doubled in three months to 1.02%.

No one can know what twists and turns are in store for the U.S. economy. But in the months ahead, the one clear wild card is the omicron variant. Bond traders are sending a clear message that while the surge might make for a frustrating January, it won’t harm the U.S. economic recovery through 2022. For a typically pessimistic bunch, they’re pretty optimistic. 

Brian Chappatta is a Bloomberg Opinion columnist covering debt markets. He previously covered bonds for Bloomberg News. He is also a CFA charterholder.

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