Message from the bond markets
May 27, 2022
Bond markets have been sending this month a message that is in opposition with the now common view about sustained inflation. Not only is the 10 year US Treasury back to 2.75% from a peak of 3%, but also the market implied inflation rate has dropped significantly. Bond investors appear to take the view that inflation is peaking. We would stay cautious as we believe it is too early to conclude with the uncertainties around us (see for example energy, food prices and tight US labour market). The inflation debate will stay on the forefront in the financial markets for the coming months and its outcome will be largely dependant on the attitude of the Fed. While equity markets look oversold and may rebound near term, we prefer to stay defensive.