Displaying items by tag: yields

Headline inflation, which includes food and energy prices, rose at a staggering 4.4% annual growth at the end of September, which is the highest number posted since 1991. This isn’t necessarily the Fed’s preferred inflation metric because food and energy prices are more volatile than other areas, but even excluding those categories core inflation was at 3.1%. On top of that, personal income is down almost 1%, which makes that inflation gain even more painful. Policy makers are worried about overall economic health as stagflation becomes a real possibility with GDP coming in at just 2%, the weakest quarter since the recovery started. Treasury Secretary Yellen says that yearly inflation will remain high but she expects monthly inflation to come down as the year closes, with headline figures coming down towards the target of 2%. On the positive side, wages and salaries kept up this month, hitting 4.6% but that still poses challenges for the labor market in its own way.

FINSUM: Inflation is still posting strong gains but keep your eyes on the monthly annualized numbers to gauge if what Yellen says is accurate.

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The fixed income (FI) portfolios of institutional investors are evolving rapidly. Investment strategists around the globe are noting that, in the search for yield, many investors are...see more on our partner's site

The fixed income market is in some of the worst shapes in recent memory. Both government and corporate debt have lost a 15 year high of 4.4% this year. Regardless if inflation is being driven by central banks and trillion-dollar stimulus or the supply chain disruptions Powell is claiming the bottom line is inflation is eating at the ‘fixed income’ bond investors have relied on. The U.K., Euro area, and Japan haven’t exactly been a shelter dropping 7.5%, 8%, and 9.8% respectively. On top of all of this, the Fed and other central banks are tightening, eroding the value of existing bonds. There has been shelter if investors are willing to look to emerging markets, such as China but overall investors need to be more flexible and can’t rely on index bond investing to survive.

FINSUM: High-yield corporate debt is where investors are going to have to look domestically to get the return after inflation they are used to.

Federal Reserve Bank Chairman Jerome Powell spoke last week on a panel hosted by the ECB, and relayed his frustration about the ongoing inflation pressures in the US economy. Powell said the economy’s most important concern is getting people vaccinated and containing Covid’s delta variant. Powell said the key inflationary pressures remain supply chain bottlenecks in the US economy. These supply constraints have the U.S.’s key inflationary measure (core personal consumption expenditure) elevated to its highest level in 30 years. The FOMC has raised their expectation for inflation from 3% to 3.7%, and Powell said this could continue into 2022. Powell’s Analysis was backed up by both Japan and the ECB’s respective leaders.

FINSUM: The supply shock to the economy remains as chip shortages still persist. As long as supply chains remain disrupted the unemployment/GDP and inflationary goals of the Fed will remain in conflict.