On Wall Street, nearly everybody trades either stocks or bonds. Stock traders are the smiling guys with short hair, button-up blue Brooks Brother shirts, and dark navy pinstripe suits. Bond traders are the same guys, only without the smile.

Stocks do well when the world is doing well and bonds mostly do well when things are going badly. This makes bond traders widely disliked. It is not cool to smile when things are going badly for everyone else.

I traded bonds for 20 years. During that time, countless friends, relatives, friends of relatives, drunk strangers and strange drunks asked me: “What stock should I buy?”

Nobody asked me about bonds. Maybe I should have smiled more.

It’s bonds that often tell you what is really going on with the economy.

Stocks seem easy. They are a single price that tells a story on how a company is doing: Apple at $100? Great! Bank of America at $15? Not so hot.



Bonds don’t seem easy. They have a yield, they have price, they have maturity, and they have a coupon. There are government bonds, there are corporate bonds, there are bonds issued by cities. Bonds are individual contracts to pay back a debt. They have a lot of moving parts.



Stocks are how you make money and bonds are how you borrow money. Everybody likes making money, nobody likes borrowing money.

Specialist Henry Becker, left, directs trading at the post that handles AIG on the floor of the New York stock exchange. Stocks extended their decline and bond prices jumped a day after Wall Street’s steady collapse on the week of the crisis. Photograph: Richard Drew/AP

Stocks may get all the attention, but it’s bonds that are at the core of any economy. Corporations use bonds more than they use stocks. The market for bonds is about twice the size of the market for stocks. About four times more bonds trade per day than stocks do.

It’s bonds that often tell you what is really going on with the economy.

Two weeks ago, on 15 October, after a long period of being quiet and positive, the markets became loud and negative. Most of the next day headlines told of a sharp drop in stocks.

The real story was what happened to bonds. During that day most US bond prices crept higher, before jumping even higher in a frenzy of panic and seemingly desperate buying. When bond markets move that way, that quickly and that desperately, regardless of the direction they are moving, it tells you something is happening to the economy.

It was what Wall Street calls a guppy suck. I had seen my first guppy suck in my second year of trading. Then prices were falling. On one panicky day a large customer kept calling me, asking about the price of a bond. He asked me at 6.30 in the morning and then almost every half hour for the next eight hours. Each time the price got lower, each time he passed, and each time he pretended he didn’t want to sell, although it was clear he did. Every time he asked I stood up and yelled, “Fifteen cents lower than the last fucking time he asked.” Finally, near the end of the day as the price tanked to its lowest price in a frenzy of trading, he sold to me, at a price far far below where he first asked. My boss yelled out: “Another guppy sucked into the toilet.” He didn’t smile.

That was 1994, and the guppies – smaller investors – were being sucked into selling bonds by fears the Federal Reserve would raise rates. This year the guppies are being sucked into buying bond by fears the Federal Reserve would delay raising rates.

Maybe it is fear about the Fed that has customers now desperate to buy bonds. It is almost impossible to say why a market does what it does when it does it. That doesn’t stop Wall Street economists from trying.

Thao Le-Nguyen poses for a selfie with Federal Reserve chairman Janet Yellen. Photograph: Michael Dwyer/AP

Don’t listen to them, because they are almost always wrong. Six months ago, 67 economists were asked their prediction on bonds. There were only two possible answers: bond prices would rise or fall. All of them, all 67 of them, said bond prices would be lower. Six months later all 67 were wrong. Not one got it right.

Which is why we had a guppy suck. The market had been thinking like those 67 economists. They had all been betting that bond prices would fall, comfortable that everyone else was betting that same way, then they all got scared at the same time. Why they all got sucked into buying bonds on that Wednesday, at around noon, is impossible to answer. That sort of thing just happens in markets, bonds and stocks.

Why were the economists so 100% certain in the first place? Because economists looked at the stock market and saw the smiling stock traders. They saw US growth and looked and said, “inflation is coming”, and inflation is the enemy of bonds.

But inflation hasn’t happened.

To see why inflation hasn’t happened it helps to think like a bond trader. Bond traders worry all the time, asking themselves, is it the right time to borrow?

Right now people are really picky about borrowing, because although the economic numbers that Wall Street economists focus on look great, although stock traders are smiling, what doesn’t look great is wage growth. People are getting jobs, but people are not getting paid much more.

People not getting paid much more means the move higher in growth and stocks and lower in unemployment is generating a lot of gossip, and a lot of economic predictions, but it isn’t generating a lot of spending, or a lot of inflation.

It also means we might be living in a world where we can grow faster, have companies do well, but not have a lot of inflation.

That is a world where maybe bond traders and stock traders can both smile.

