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.
The constraint on global growth this year has evolved from the supply of vaccines to the supply of nearly everything else. Raw materials, intermediate goods including semiconductors, and even labor seem to be in short supply. This environment risks a stall in output, earnings and job growth while pushing prices higher. Commodity prices are soaring at a pace not seen since the Carter administration.