Who Controls Bond Yields?

While there may be a Fed Put, the stock market historically does much better when bond investors, rather than the Fed, control yields.

Investors often wonder who controls bond yields. Is it private bond investors collectively acting in their own self-interest or does the Federal Reserve effectively dictate the yield curve when implementing its latest monetary policy? In reality, it’s probably a combination of both. Sometimes the Fed essentially becomes a bystander, mostly watching from the sidelines as bond investors drive yields. At other moments, the Fed’s heavy hand overwhelms private investors as yields are forced to follow official monetary commands.

What has been the history of bond market control in the United States? Have bond yields mostly been driven by private investors or are policy officials the most influential in establishing yields? Has control of the bond market changed much during the post-war era? And, most importantly, does the stock market do best when the bond market is driven by private investors or when policy officials are at the wheel?