If there was any question regarding whether investors bought in to the Federal Reserve’s narrative of inflation being transitory, it was answered last week. Despite the US Consumer Price Index (a common measure of inflation) rising to nearly 5% year-over-year, an increase not seen since 2008, bond markets barely reacted.
Had investors been truly concerned about inflation being longer lasting, we would have expected rates to rise as bond holders sold-off. However, as you can see below, the US 10-year Treasury rate has actually decreased slightly in June.
To be clear, only time will tell whether or not inflation becomes a long-term issue. However, at least for now, investors seem to believe the Fed that the increase in prices is a short-term phenomenon. The Federal Reserve will meet later this week, so they will have an opportunity to provide investors with an update shortly.
Prices & Interest Rates
Crude Oil (US WTI)
2 Year Treasury
10 Year Treasury
30 Year Treasury
Source: Morningstar, YCharts, and US Treasury as of June 11, 2021
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