Bond Yields - Daily Sketch
Jeroen Blokland | Feb 16, 2021 09:53
Today’s Daily Sketch is again devoted to the outlook for bond yields. A couple of days ago I pointed out that the yield curve could steepen further. Today’s chart shows the nominal US 10-Year Treasury rate and the 10-year breakeven inflation rate, generally seen as one of the most reliable market-based measures of expected inflation. The gap between the two has grown historically large. And while nominal bond yields are kept artificially low by massive Federal Reserve bond buying, my guess is that the black line will (slowly) move towards the blue line and not the other way around. Not in the least because ongoing fiscal stimulus aimed at boosting the real economy should have a longer-lasting upward effect on inflation. Hence, remain underweight duration for now.
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