This Is Why Bond Yields Are Falling

In this week’s Dirty Dozen [CHART PACK]  we look at the fastest inflation increases in nearly 40-years. Check out peak EPS and turning secular wage growth, before going through each of the reasons why bond yields are falling. And finally, we end with the long mean reversion pitch for USDCAD and a bullish technical setup in a US defense contractor, plus more… 

silver and gold round coins in box


Let’s dive in. 

  1. Core US inflation has risen at an 8.3% annualized clip over the past 3-months. That’s the fastest pace since 1982 according to BofAML. 

There’s no shortage of opinions on where inflation is headed over the next year. Personally, I’m more interested in understanding where the consensus narrative is shifting relative to the probable distribution of outcomes. There’s more edge for me in fading the herd versus predicting something as complex as the general price trends of nearly all goods and services 12-months out. 

  1. Regardless, I think the trend in large companies significantly raising their minimum wages is important. We’re coming off secular lows in the lower-end wage share of GDP. The political landscape has shifted materially in the direction of us not resuming the march towards greater inequality. So that bit is unlikely to be transient (charts via MS).


  1. Via the latest BofAML Flow Show which sounds about right to me (BAC):

“Risk vs. reward: sentiment now ‘it’s a free call option on credit & stocks’ until “return-to-office” Sept payroll (released Oct 8th) and return of Goldilocks as macro cannot get any hotter (combo of inflation & labor shortages at US small businesses highest since 1974); we say wage growth means lower yields transitory & H2 stagflation means risk-return for stocks (+3-5% vs -10-15%) poor.”

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Disclaimer: All statements are solely opinions and are for educational purposes only.

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Dieudonne DJIMI 3 months ago Member's comment

Good Stuff!