For the second month in a row, CPI showed inflationary pressures were falling at a faster pace than economists’ estimates, which is undoubtedly good news. So why haven’t treasury yields followed?
Inflationary dynamics continue to surprise to the upside, and markets now expect the Fed to pursue one of its most aggressive rate hiking campaign in years.
The unrelenting move higher in U.S. Treasury yields continued last week making it the 15th week (out of the past 16 weeks) that the yield on the 10-year U.S. Treasury security ended the week higher.
Earnings will be key to the path for stocks the rest of the year given that we believe valuation expansion will be tough to come by with higher interest rates and stubbornly high inflation.
As painful a start to the year as it has been for equity and core fixed income investors, it doesn’t change, in our view, the argument for more conservative investors to own core bonds in a diversified portfolio.
It looks like interest rate hikes are almost surely coming next year, but how high and how fast the Fed will hike remains a question.
Financial markets tend to be relatively quiet the day after Thanksgiving but this year was a notable exception. With the news that a new COVID-19 variant—Omicron—had been discovered and is spreading quickly, prices of risk assets fell and safe-haven assets rallied on Friday.
Treasury yields started moving sharply higher this past month (remember that as yields go up, prices go down). And while the upward march began in earnest last August when the 10-Year Treasury yield bottomed at an all-time low rate of 0.50% based on closing prices, the past week we saw the 10-year break through the 1.25% threshold and touch 1.35%, a new high for the year.
