Market Commentary
Timely takes on markets and the economy.
Market Commentary content
The bond market has become surprisingly quiet in the past few months. Ten-year Treasury yields have settled into a narrow range near 1.6%, after peaking at 1.74% on March 31st, a steep rise from less than 1% at the start of the year. The market has shrugged off wide swings in the economic data, a spike in inflation readings, and uncertainty about the direction of fiscal and monetary policies. It reminds us of one of the puzzles in children’s magazines where you’re supposed to figure out “what’s wrong with this picture?”
Municipal bond yields are relatively low, which may make some investors wonder about their attractiveness as an investment. However, we have a favorable outlook on munis for the second half of the year, due to a variety of potential tailwinds, including government fiscal support and technical factors.
Global prices have been inflating at a rapid pace, lifting inflation-sensitive sectors of the stock market (ex. Energy is the world’s best performing sector in 2021) and driving bond yields higher around the world (ex. the German 15-year bond yield rose above zero for the first time in two years). Google searches for news on inflation have soared.
Investors can be a fickle bunch when it comes to topic obsessions; but a persistent one this year is inflation. Bear with me on this topic—today’s report is a bit lengthier than usual, but it covers much of what has been top-of-mind for our investors and dives into implications for the stock market and valuations.
