The Liquidity Tide Pulls Back: A Reversal In Rising Yields

The U.S. 10-year treasury yield has fallen over 50 basis points to around 2.78%The recent rally in bonds could be triggered by a couple of various elements, with the most apparent being the large institutional gamers such as pension funds that are (and have been) in desperate need of yield. The 2nd aspect at play could be the upcoming financial downturn taking location in the United States, as bond financiers (frequently promoted as being the wise cash) front-run a slowdown in consumer spending and inflation expectations.Inflation expectations are lowering with a rally in bondsWith the fall in bond yields, equity indices have rebounded, with the S&P 500 currently trading 6.7% off of its May 20 lows. Last NoteWhile forward inflation expectations for the next five years are sitting at 2.24%, present year over year consumer price inflation is 8.22%, suggesting the real yield on all international set earnings instruments has actually been deeply unfavorable.