Central banks and governments around the world have been abandoning traditional fiscal discipline, allowing budget deficits to balloon without consequence. In a surprising turn of events, bond markets, which have historically been sensitive to fiscal recklessness, seem to be turning a blind eye. Despite unprecedented levels of government spending and borrowing, investors have been willing to accept higher interest rates in exchange for the promise of returns from government bonds. But as governments continue to push the boundaries of fiscal responsibility, experts are left wondering how long this trend will last – and what the consequences might be for economies and markets alike.
Governments have stopped correcting budget deficits but — so far — bond markets have let them
