Inflation boosted by the supply chain crisis will boost bond yields in the coming weeks, according to Wells Fargo Securities’ Michael Schumacher.
The company’s chief strategy officer believes that the benchmark 10-year Treasury yield could reach 1.9% by the end of the year. This is a 23% increase from Wednesday’s closing price.
“The number one is inflation. It’s everywhere,” he told CNBC’s “Trading Nation” Wednesday.
Schumacher also looks at expectations of how the Federal Reserve will react as a factor in raising yields. He states that several central banks, including Norway and New Zealand, have already adjusted their policy rates.
“The Fed will probably taper [and] We will announce it next month, “he said.” In our view, it will push up yields. It will rise a little more and fall in December. “
It is then that Schumacher expects investors to exceed their debt caps, regain government funding and lower yields.
But Schumacher, who is bearish on bonds, thinks the decline is temporary.
“This all goes back to inflation,” he said. “It will be here for a while, and this really colors our market outlook.”
The latest economic indicators show higher-than-expected inflation. The Ministry of Labor reported on Wednesday that the consumer price index rose 0.4% last month. This is a 5.4% increase over the previous year. This is the highest year-over-year profit in over 30 years.
“”[This is] It’s not just a US issue. At this point, it really concerns the whole developed country, “Schumacher said.
Despite inflation concerns, Schumacher is not in the stagflation camp. This refers to the pressure to push prices up during periods of slowing growth.
Stagflation is “overrated”
“Frankly, it’s exaggerated,” he said. “People say,’Well, yeah, next year will grow slower than this year.’ Well, that’s true, but how much the problem is, and 2022 growth is a really serious disappointment. Will we be? We don’t think so, and if you’re growing in the United States, it’s 2.[percent]-plus. Perhaps it’s not really stagnant. “
He has been bullish on economic growth since the pandemic rage. Last December, Schumacher told Trading Nation that the Covid-19 vaccine would dramatically increase confidence in the economy and boost Treasury yields. Yields have risen 72% over the past 10 years since his interview.
From an investment perspective, Schumacher only considers holding long-duration bonds as a short-term place to hide from stock market volatility. He finds Treasury yields unattractive because long-term investors aren’t keeping up with inflation.
“The Fed is very concerned about this, and Chair Powell made it quite clear,” Schumacher said. “We think it will encourage Powell to insist on tapering in a few weeks.”
Wells Fargo calls for bearish bonds, citing supply chain crises as risks
Source link Wells Fargo calls for bearish bonds, citing supply chain crises as risks