April 23, 2021
After a consistent rise in yields in late February and March rates are finally falling as the 10-year
treasury yield sits just over 1.5%. This is mainly coming from the fact that markets are softening to
the recovery and at peace with above-average growth and steering towards full employment by
2022. However, economists at Jefferies are predicting faster growth and lower unemployment
and markets having to re-adjust. This means spikes in 3 and 5-year T-bill yields. Deutsche Bank is
taking a leaning toward a different scenario. Where the Fed outpaces the economy, it is causing too
much wage inflation and causing higher unemployment and sinking yields. Bank of America
likewise warned that the recent fall in yields was not sustainable and the trend will be higher.
Income investors will want to keep their eyes on economic data to see which scenario is playing
out in real-time.
FINSUM + Magnifi: Deutsche Bank’s scenario seems unlikely. Wage inflation outpacing commodity inflation so fast that it triggers unemployment has never happened before, but the effect of the stimulus packages could be overblown and this could slow down the Treasury Market.
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