Early during President Bill Clinton's first term, as his administration was working to kick-start the economy, Democratic political consultant James Carville quipped if there was reincarnation, he wanted "to come back as the bond market. You can intimidate everybody."
At the time, investors in U.S. government bonds were selling. That pushed up interest rates making it more expensive for the federal government to issue IOUs. The sharp rise in interest rates then led Clinton to abandon plans to significantly boost spending.
Today, investors can't get enough government debt. They have been steadily buying bonds, driving down interest rates. The bond market rally has come even as the stock market has hit new highs, the unemployment rate has dropped, inflation has trended higher and housing prices continue recovering. Trading textbooks would have one believe those are not conditions favorable to bonds.
But the bond market has not been intimidated by any of it. There are plenty of theories why; China is buying American government debt to keep interest rates low for American consumers, investors love to chase performance and the scars of the stock market collapse remain fresh.
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This week, investors will watch to see if a key interest rate continues to fall -- and bond prices rise -- to levels not seen in almost a year. The U.S. government's 10-year bond dropped below 2.5 percent as May was coming to an end. If rates stay that low, it usually would be seen as a worrisome sign that the economy will struggle. But let's hope the economic intimidation of the bond market rally has limits.
Tom Hudson, financial journalist, hosts "The Sunshine Economy" on WLRN-FM in Miami, where he is the vice president of news. He is the former co-anchor and managing editor of "Nightly Business Report" on public television. Follow him on Twitter@HudsonsView.