Stocks Ride the “Bliss Trade” as Bonds Signal Inflation Risk

Why the “bliss trade” fuels a stock‑bond split

Investors are watching a widening rift: equities climb while Treasury yields surge. The bliss trade, a term coined by former IMF chief economist Gita Gopinath, assumes fiscal firepower can neutralise geopolitical shocks, letting stocks rally even as bond markets price higher inflation.

Gopinath argues that government spending during the 2022 energy crisis and the pandemic proved that fiscal buffers can sustain growth. That logic now underpins the S&P 500’s ↑ 7% weekly gain.

“Markets bet on fiscal rescue despite soaring debt,” she told Reuters.

Bond investors, by contrast, focus on real returns. The 30‑year Treasury yield breached ↓ 5% for the first time since 2007, reflecting inflation fears and higher borrowing costs.

AI hype versus war‑time risk

Tech optimism, especially around artificial intelligence, propels chipmaker Cerebras Systems up 68% after its debut. Yet analysts warn that prolonged conflict could revive inflation pressures, testing the “bliss trade” premise.

Should equities reassess risk, Treasury yields could tumble, echoing past crises when investors fled to safety.

Analysis by: Arthur Sterling

Macroeconomics Editor