👀 Ones to watch: Undervalued stocks to buy before they report Q3 earningsSee Undervalued Stocks

Chart Of The Week: Bond Yields And Inflation

Published 04/27/2022, 12:45 AM
Updated 07/09/2023, 06:31 AM
US10YT=X
-

Treasury Yields and the Long-Term Rate of Inflation: A lot of people have gotten excited about the surge in annual inflation rates, but in my view it’s arguably more interesting to look at the 10-year compound annual growth rate of CPI (long-term inflation rate)—particularly as it pertains to bond yields.

Typically, bond yields follow the growth/inflation pulse, with a particular emphasis on growth in the shorter-term. But as we can see in the chart below, bond yields over the longer-term trace a fairly similar path to the longer-term rate of inflation.

Arguably the current move in bond yields has more to do with inflation than growth. Perhaps even to the extent that we could end up seeing growth momentum falter (as the leading indicators suggest), but still see bond yields move higher given the permanent bump to prices and lingering effects on the longer-term rate of inflation.

In terms of the “so what?“—if we were to take this chart literally, US 10-year Treasury yields would need to rise to around 4.5%+ to line up with the current and expected pace of this longer-term inflation rate…

US Treasury Yields vs Long Term Inflation Rate Chart

Key point: With an increasing fixation on inflation, bond yields could go higher yet.

Latest comments

Loading next article…
Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.