Higher US Treasury Yields — Repricing Term Premium does not Harken Back to the “Taper Tantrum”

  • Long-term US Treasury yields have been rising since late 2020, as the extraordinary monetary and fiscal stimulus have made investors jittery about a potential inflationary shock. Although real yields are edging higher, they are still in negative territory.
  • The fast-paced vaccination programme, coupled with strong economic recovery and government stimulus package, is expected to prop up consumption and investment. A spike in growth fuel consumption adds inflationary pressure. Hence, investors believe Fed to intervene earlier than anticipated in response to rising yield and inflation.
  • Cyclical sectors of the economy and Asia remain attractive opportunities in the fixed income market. Furthermore, pockets of opportunity remain in the broader investment grade and HY fixed income market.
  • USD1.9trn fiscal package (including USD1trn direct aid to individuals and USD440bn to businesses)
  • Successful vaccine rollout (ca 21% of the US population received the first shot of the vaccine and ca 11% population was fully vaccinated as of mid-March)
  • Strong economic data — Unemployment rate has been consistently declining, from the peak 14.8% in April 2020 to 6.2% in February 2021, Q4 2020 GDP grew 4.1% and personal income and consumer spending increased 10.0% and 2.4%, respectively, in January 2021.

--

--

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store
Acuity Knowledge Partners

Acuity Knowledge Partners

57 Followers

We write about financial industry trends, the impact of regulatory changes and opinions on industry inflection points. https://www.acuitykp.com/