Bond Traders Are Worried About Falling Prices

But as recently as May 1, the yield had dipped to a 2013 low of 1.62%.

That's a sign that "traders' worries turned from inflation to falling prices," says a USA Today article published on the same day. The article added that, "The latest economic reports show wage pressures are less than half what the Federal Reserve says is acceptable."

The title of the article is "Deflation, not inflation, could bedevil markets."

Here's an excerpt:

Fixed-income traders will accept lower yields in periods of falling prices. And weak economic news of late is raising that specter. ...

The Fed's mandate is economic and price stability. Usually that means making sure inflation doesn't take off. Despite its aggressive stimulus actions the past few years, the Fed now may have to focus policy on preventing a period of deflation, or falling prices. ...

If consumers and businesses are convinced prices of goods and services are falling, they tend to delay spending if possible. They want to wait and get the lowest price they can. That sentiment would snuff out the bull market, likely in an alarming sell-off.

Worst case scenario: a deflationary spiral like the one during the Great Depression, which triggered individual and corporate bankruptcies across the land. After the stock market crash of 1929, it took the government years to get the economy growing again.

Click here to read the entire article.