Aug 14, 2019

Bond investors are not worried about inflation

Illustration: Sarah Grillo

Bond investors were unfazed by Tuesday's consumer price index reading, which showed inflation picked up meaningfully in July.

By the numbers: The U.S. consumer price index rose a seasonally adjusted 0.3% last month from June and 1.8% from a year earlier. The core reading excludes volatile food and energy categories, up 2.2% year over year.

Why it matters: Normally a higher-than-expected inflation report would cause a selloff in Treasuries because inflation erodes the value of already held bonds, especially in longer-dated maturities. But not on Tuesday.

  • "For fixed income investors it’s a matter of competing with the rest of the world to find some sort of attractive yield while it’s still around. Maybe that’s actually outweighing the fear of slightly higher inflation," Gennadiy Goldberg, interest rates strategist at TD Securities, tells Axios.
  • "The thinking seems to be, 'We’d rather lock in higher yields right now, if we can, and worry about inflation later because it’s not really our concern,'" Goldberg said.

Go deeper

Markets provide an unambiguous signal that investors expect recession

Data: Federal Reserve Bank of St. Louis; Chart: Chris Canipe/Axios

There had been debate among economists and fund managers about the importance of previous yield curve inversions, but Tuesday’s market action provided an unambiguous signal that investors are expecting a recession.

Driving the news: The U.S. Treasury yield curve completely inverted Tuesday, with 1-, 2- and 3-month Treasury bills all paying higher interest rates than 30-year Treasury bonds.

Go deeperArrowAug 28, 2019

Globalization may be changing the fundamentals of economics

Photo: Biddiboo/Getty Images

Globalization has played an increasingly large role in determining the rate of inflation over the last decade, asserts a new Brookings paper from MIT global economics professor Kristen J. Forbes.

Why it matters: With inflation more "determined abroad" than ever and outside the control or purview of central banks, it may be time for a major overhaul in the way they operate.

Go deeperArrowSep 6, 2019

A new era in the war on savers

Illustration: Lazaro Gamio/Axios

Stocks may be the safe asset now. With U.S. Treasury yields in a free fall and the corresponding decrease in U.S. bank savings and money market rates, the S&P 500 dividend yield now pays more than both the 30-year U.S. Treasury bond and the average online savings account, data show.

The result: Investors get a better automatic return holding stocks than they do putting money into historically less risky assets.

Go deeperArrowAug 29, 2019