The recent sharp rise in U.S. bond rates, coupled with the surge in industrial supply chain costs, these signs are indicative of impending Inflation.
The U.S. bond yield curve (the difference between long- and short-term bond yields) is the steepest in years as long-term U.S. yield rates climb; the U.S. 10-year bond yield closed at 1.1635% last week, the highest since last March, and the 30-year bond yield closed at 1.9711%, close to 2% for the first Time in nearly a year.
The U.S. 10-year anti-inflation bond (TIPS) breakeven rate, which assesses annual inflation expectations over the next decade, rose to 2.19%, the highest since mid-2018.
This is a classic sign that the bond market is expecting stronger economic growth and rising inflation. This inflation expectation is likely to rise further after both chambers of Congress passed a budget resolution that allows the Democrats to push President Biden‘s $1.9 trillion stimulus package through on their own, plus the Federal Reserve Board (Fed) is happy to see inflation temporarily exceed its 2% target.
Economists have raised the U.S. economic growth estimates, Cornerstone overall company economist Lazar expects the U.S. economy to expand by 7% in the fourth quarter, higher than the previous estimate of 6%.
According to the Financial Times, rising supply chain costs are also pushing up inflation. For example, German automakers are considering increasing their semiconductor inventories to prevent a repeat of the wafer shortage that halted car production, which could prompt the auto industry to change its decades-old model of “just-in-time management” of the supply chain.
In addition, the sharp recovery in global trade has led to serious delays in delivery and soaring freight costs, also sharply pushing the cost of shipping.
U.S. fitness equipment maker Peloton (Peloton) said it will spend $100 million in the next six months on air and fast shipping to improve delivery wait times. Manufacturing purchasing managers’ index (PMI) surveys around the world also show that production prices have begun to soar.
Recent Comments