Bond rally reduces inflation fears

The multi-month decline in bond yields illustrates investor belief that inflation is probably not the biggest problem facing the US and global economy.

Monday’s massive sell-off in major U.S. stock indexes highlighted growing investor concern that the biggest risk to the markets right now is disappointing growth, rather than the dreaded out-of-control price increases earlier in the year. . At the same time, many investors believe that the inflation numbers may be high for a period of time and then subside on their own or lead the Federal Reserve to raise interest rates and slow down the recovery. .

The yield on the benchmark 10-year US Treasury bond stood at 1.208% on Tuesday, Tradeweb said, up slightly from Monday but still down from 1.3% on Friday and its highest 2021 rate of 1.749% established in March.

Yields, which rise when bond prices fall, rose sharply earlier in the year, supported by bets that the US economy would reach full employment at a remarkable rate due to a vaccine-fueled recovery. by large-scale public spending.

In addition to the hike, Fed officials have indicated they will delay raising interest rates until inflation has exceeded its 2% target for an extended period. This boosted investor confidence that the Fed would let the economy run at full capacity, creating sustained inflation that the central bank could then control with timely rate hikes.

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