Tag: Inflation

Annual pace of inflation leaps higher in March to 2.2% – BNN Bloomberg
— Read on www.bnnbloomberg.ca/annual-pace-of-inflation-leaps-higher-in-march-to-2-2-1.1593192

Inflation is just warming up, but by late spring it could get downright hot, even if just temporarily.
— Read on www.cnbc.com/2021/03/09/inflation-may-have-been-warming-up-in-february-but-it-could-be-hot-by-may.html

(Bloomberg) — U.S. Treasuries tumbled anew on Wednesday, driving long-maturity yields to their highest levels this week and pushing up inflation expectations as traders continued to price in a quicker economic rebound from the pandemic.Benchmark 10-year Treasury yields surged as much as 10.3 basis points to 1.495%, a move reminiscent of last Thursday’s startling selloff in government debt. Meanwhile, a market proxy for the anticipated annual inflation rate for the next half-decade exceeded 2.5% for the first time since 2008 — aided by climbing oil prices. At least part of the trigger for the fixed-income losses came from the U.K., which said it will sell more bonds than expected as its economy emerges from a deep recession.Also in the background was Joe Biden’s announcement that enough doses of virus vaccine should be available to every American adult by the end of May, and a report Wednesday that the president would moderate certain stimulus demands to try to win support for his virus-relief bill. Rising yields have started to draw the attention of Federal Reserve officials, leaving all eyes on an appearance Thursday by Chair Jerome Powell.Among other things, “the stimulus package is likely to go through and the economy is reopening,” said Michael Franzese, managing partner at MCAP LLC in New York. “The battle is on between rates going higher super-fast and a Federal Reserve that’s trying to keep the market stable and may try to slow the momentum of the reflation and economic-rebound trade into something more manageable.”Early inklings of inflation were evident in data from the Institute for Supply Management this week: Measures of prices paid jumped to their highest levels since 2008.A large trade on Wednesday in 10-year Treasury options and accompanying futures selling also fueled the leap in yields, as did heavy corporate bond supply.The rates market is not yet done fully pricing in robust U.S. economic growth, which would entail a 10-year yield trading around 1.90%, said Mark Heppenstall, chief investment officer of Penn Mutual Asset Management in Horsham, Pennsylvania. That’s the level last seen in January 2020, two months before pandemic fears started prompting forced shutdowns in the U.S.Beyond rising nominal and breakeven rates, “the dynamic rise in the 10-year real, inflation-adjusted yield we’ve seen is the market partly adjusting to a faster-than-anticipated pace of rate normalization by the Fed,” he said.The timing of the Fed’s first rate hike, known as liftoff, and subsequent rate hikes haven’t been factored in, making Treasuries vulnerable to a further selloff in the weeks ahead, according to Heppenstall.(Adds reference to Fed rate hikes in ninth paragraph.)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.
— Read on ca.finance.yahoo.com/news/u-yields-resurgent-inflation-expectations-171038508.html

Some economists and investors are warning about the threat of rising inflation even with the U.S. still struggling to recover from deepest recession ever….
— Read on www.marketwatch.com/story/inflation-worries-are-back-heres-what-you-should-worry-about-and-what-you-shouldnt-11613594872

(Bloomberg) — Every new sign that U.S. financial markets finally see some inflation in the pipeline is another piece of good news for the Federal Reserve.Bond-market indicators of inflation, from long-term yields to the cost of hedging, have all pushed higher in recent weeks. Investors can see price pressures waking up — perhaps more than the U.S. is accustomed to lately, but well short of Fed targets, let alone anything that would set off alarm bells with the economy still stuck in a coronavirus slump.Expansionary fiscal policy is helping to drive the change in outlook. That gives the central bank, which meets next week to discuss policy, another reason to cheer. It has struggled to gin up much inflation in the past decade with its own tools.Heading into what looks like a monetary-policy gap year, with neither bond purchases nor benchmark interest rates expected to change in 2021, the Fed is far more worried about the risk of long-term scars — which could develop from a slow recovery — than about the risk of overheating the economy.It’s been promising not to apply the brakes anytime soon –- and urging politicians to hit the accelerator with more pandemic stimulus. Joe Biden’s new administration is poised to oblige, by asking Congress for another $1.9 trillion.‘Beginning to Work’“This all suggests that what the Fed wants is beginning to work in the markets,” said Jim Caron, a fund manager at Morgan Stanley Investment Management, which oversees over $700 billion in assets. “Unlike in the past, when it pulled back policy when things were good, it’s now set to keep policy accommodative even in a recovering economy.”Inflation has been below the Fed’s target for most of the past decade. Steady prices don’t sound like a bad problem to have, but central bankers and most other economists prefer a little inflation. It helps employers manage their wage bills, makes debt servicing easier, and allows interest rates to be set at levels that leave room for cuts in a downturn.Under a new policy framework adopted last year, the Fed wants an average inflation rate of 2% over time –- which means it could tolerate a higher one for a while. Markets aren’t quite there yet.Five-year forward swap contracts on consumer-price inflation have risen above 2.3%, and currently hold just below the highest since 2018. Adjusting for measurement differences between CPI and the Fed’s preferred measure, that puts longer-run inflation pricing right around 2%.The market is “only now pricing in inflation normalization, not even an overshoot,” said Michael Pond, global head of inflation-market strategy at Barclays. Even so, year-on-year price increases will likely be “above levels we have seen in many years because of very weak monthly readings last spring.”‘Wages are Key’Actual inflation has been low since the pandemic struck. Core consumer prices, excluding volatile food and energy costs, rose 1.6% in December from a year earlier.Potential triggers of inflation include a surge in demand as Americans get vaccinated, though the Fed has signaled it will likely treat that as a temporary blip. There are forces pushing the opposite way too, such as lower rental costs in large cities. Above all, millions of would-be workers still haven’t recovered jobs lost in the pandemic, restraining consumer demand and meaning sellers of goods and services still have to compete hard on prices.“To get actual inflation that leads to higher inflation, which is what central banks are vigilant against, you need wages to rise,” said James Athey, a London-based money manager at Aberdeen Standard Investments, which oversees assets of over $560 billion. “And with unemployment where it is now, I struggle to believe you are going to get wide-based wage growth.”Athey sees expectations for 2021 as “overly optimistic” -– with regard to economic growth and virus containment –- and said he’d be a buyer if 10-year Treasury yields rise sharply again. They reached as high as 1.19% this month, the highest since the pandemic escalated across the country in March, but have fallen back a few points.‘False Economy’Ten-year breakeven rates, which measure the gap between yields on inflation-protected Treasury debt and the ordinary type, have climbed to the highest since 2018 at around 2.1%. Like other forms of protection against inflation, they’ve been attracting investors. JPMorgan Chase & Co. strategists are warning buyers that they shouldn’t expect to get rich quick.“Breakevens, steepeners and gold are still appropriate inflation hedges for an inflation cycle that could break out of 20-year ranges eventually,” they wrote in a Jan. 15 note. But they’re unlikely to deliver large returns in the next year or two, when slack in the economy will cap any rise in core inflation to “a few tenths of a percent.”If that kind of small increase no longer spurs Fed officials into tightening, one reason is the lessons learned after the 2008 financial crisis. Policy makers have broadly concluded that they withdrew support too early back then –- and are now inclined to err on the side of keeping the spigots open too long.A similar attitude also applies to government spending, seen by the Fed as crucial for economic recovery and reflation. The point was made this week by Janet Yellen, who was in charge of monetary policy as Fed chair last decade and is now set to steer fiscal policy as Biden’s Treasury Secretary.“We can afford what it takes to get the economy back on its feet, to get us through the pandemic,” Yellen told the Senate Finance Committee on Tuesday. “It would be a false economy to stint.”For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.
— Read on ca.finance.yahoo.com/news/inflation-rippling-markets-just-fed-100000732.html