July 20, 2021
The summer bond market has a pretty predictable summer pattern. Normally burgeoning summer demand boosts stocks. This naturally leads to a pull-out of bonds reducing their prices and spiking yields. The stage was set for this same summer effect as demand has boosted stocks, but yields are falling. Ten-year treasuries have fallen over 40 basis points since the middle of May, and other long-term Treasuries are following a similar pattern. The Delta Variant of Covid is increasing concerns about overgrowth, and yes inflation concerns are spiking, but it's really about how the Fed will react to it. Conversations are already in place surrounding tapering bond market purchases by the Fed. This means rate hikes could be around the corner to counter rising inflation. Some see this as a bottoming out of yields, but others see this as more permanent as short-term yields are rising, flattening the curve and implying tightening expectations.
FINSUM + Magnifi: Income investors should look at corporate-treasury bond spreads. Yields are extremely attractive in Baa particularly if you think the recovery is robust.
Other news today: New Regulations Means Funds are Better Than Stocks and A Huge Influx of Cash About to Hit ESG
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