How High Could U.S. Treasury Yields Rise This Year?

The Biden administration plans to fund the infrastructure plan through tax increases, Cousley explained, including by raising the corporate tax rate from 21% to 28%. He noted that this increase would amount to unwinding roughly half of the corporate tax cuts passed by Congress in late 2017. “Prior to the Tax Cuts and Jobs Act, the tax rate for corporations was 35%,” he said.

One of the key takeaways in the wake of the bill’s unveiling, Cousley stressed, is that several rounds of negotiations among members of Congress are likely—especially when it comes to the funding of the plan. “There are some individuals in the Democratic Party who are a bit hesitant to increase tax rates, so expect more discussion around this over the next several weeks,” he stated.

Strong growth outlook for China

Switching to China, Cousley said that the outlook for the world’s second-largest economy remains quite positive. PMI (purchasing managers’ index) surveys conducted after the country’s Lunar New Year celebrations in February indicate strong growth in both manufacturing and services, he noted, even when accounting for seasonality.

“The most encouraging part of these reports is that forward-looking data points, such as new orders and new export orders, came in even stronger than expected,” Cousley noted, adding that the broader global reopening appears to be benefiting Chinese manufacturers.

Given the nation’s strong recovery from the COVID-19 crisis, he expects China to begin policy tightening this year but emphasized that the transition is likely to be gradual. “I believe that authorities will be sensitive to any economic volatility that crops up in the data, and will likely pare back on tightening if this becomes the case,” Cousley concluded.

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Disclosures

These views are subject to change at any time based upon market or other conditions and are current as of the date at the top of the page.

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