Pimco Sees Swelling Deficit Dragging Bonds 'Back to the Future'.

Pacific Investment Management Co. (Pimco) is warning that the US fiscal deficit could cause the Treasury market to resemble the 1980s, when bond vigilantes demanded higher compensation for holding longer-dated bonds. Pimco argues that a combination of stickier inflation and deteriorating budget estimates could reverse the 40-year downtrend in bond yields. The firm suggests that if term premiums, which represent the extra yield investors seek for holding longer-term debt, return to levels seen in the late 1990s to early 2000s, it could have significant implications for financial markets. Pimco also notes that rising deficits are a concern and that markets act as a disciplining mechanism for governments. [Extracted from the article]