Chart of the week

Yields decline despite rising inflationary pressures

As inflation rises, longer-term yields have declined. This week’s chart looks at the yield curve as the hunt for yield gets harder.

July 16, 2021 | 2 minute read

Longer-term Treasury yields have seen the greatest declines

Source: U.S. Treasury Department, as of July 14, 2021. 

  • Inflation data surprised investors this week as the consumer price index saw its biggest jump since 2008 and recorded another significant upside surprise.1
  • While inflation has dominated the economic discussion for much of this year, the latest data have added a level of urgency to the debate among economists and market watchers as to whether the uptick is in fact transitory or the start of a higher new inflation regime. For his part, Federal Reserve Chair Jerome Powell acknowledges that recent inflation readings have come in higher than even he expected but noted that the economy remains “a ways off” from a place where rate hikes would be necessary.
  • Despite a very public debate, markets generally appear to be taking Powell’s comments at face value. The chart shows the change in the U.S. Treasury yield curve since the end of Q1. As it highlights, shorter-dated Treasuries (two years or less) over which the Fed has the most control have seen very little movement.2
  • However, yields on longer-term Treasuries have fallen between about 30 and 35 basis points since March.2 This is likely a sign of the market’s faith that the Fed won’t let inflation or growth run too hot for too long (or perhaps that recent inflation numbers are likely the result of a temporary jump in “reopening” categories).
  • Against this backdrop, the search for income remains extremely difficult and an uncertain inflation outlook requires a heightened awareness of inflationary pressures that could further impact fixed income portfolios – whether inflation is transitory or not.    

  • U.S. Bureau of Labor Statistics,

  • U.S. Treasury Department,

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