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Thursday, July 8, 2021


Scott Carrithers

George Morris • Chris Thompson • Sean Doherty • Kevin Doyle • Mark Tranckino
Jeff Goble • Nicole Burczyk • Natalie Regan • Aaron Stoffer • David Farris • Lonnie Harris
 Brian Schaff • Josh Kiefer • Robert Schuyler • Tom Toburen • Aaron Hemphill • Jared Willhoft

US Treasury Market
Date 1 mo 3 mo 6 mo 1 yr 2 yr 3 yr 5 yr 7 yr 10 yr 20 yr 30 yr
06/30/21 0.05 0.05 0.06 0.07 0.25 0.46 0.87 1.21 1.45 2.00 2.06
07/01/21 0.05 0.05 0.05 0.09 0.25 0.47 0.89 1.24 1.48 2.01 2.07
07/02/21 0.05 0.05 0.05 0.08 0.24 0.45 0.86 1.19 1.44 1.98 2.05
07/06/21 0.05 0.05 0.06 0.07 0.22 0.42 0.81 1.13 1.37 1.92 2.00
07/07/21 0.05 0.05 0.05 0.08 0.22 0.41 0.79 1.09 1.33 1.87 1.94
                Source: U.S. Department of Treasury as of 7/07/2021

                                                                     Fight the Tape … ?

Yesterday’s PMR suggested mounting price pressures, including significant and “sticky” increases in the Median National Rent, may prove more of an inflationary challenge than currently expected by the Federal Reserve Bank. 

But as always, not everyone agrees. 

Steven Major, Global Head of Fixed-Income Research for HSBC Holdings Plc, recently wrote, “There is no change to our long-term bullish view and forecasts of 1.0% for 10-year yields for year-end 2021 and 2022.” 

Apparently, HSBC is not alone in believing long yields have already hit their peak for the year.  According to Liam O’Donnell, a money manager at Aberdeen Standard Investments, “The reflation story has just taken a massive whack. If you don’t think inflation is running out of control, and you don’t think interest rates are going anywhere for two years, then there’s nothing to fear in buying bonds at these levels, or lower.”

Inflation, and inflation expectations, are at the crux of fixed-income markets and the argument for “transitory” inflationary pressures seems to be winning out.  Apparently, the global reflation trade is in some doubt, suggesting the U.S. central bank won’t be forced to rein-in financial conditions any time soon.

But as always, not everyone agrees.

Richard Hodges, a money manager at Nomura Asset Management, says, “It’s madness to think we are in a bond bull market. Everything else is higher – equities, inflation, oil prices, food, wages.”

With 10-year Treasury notes at 1.32% - its lowest yield in more than four months – the inflation adjusted real rate has dropped back to 1.0% negative.  For perspective, the graph below shows the real rate for 10-year notes bottomed at 1.1% negative on 1/4/21, which was its all-time record low real rate.


                                                                                                                                                                                                                                                           Source: Bloomberg LP


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