The 10-year Treasury yield hit a new 2021 high on Friday, climbing to 1.64%. The indexed-linked yield was up four basis points last week, to -0.62%. The break-even inflation rate for 10-year Treasuries rose four basis points to 2.26%.
The stock market, of course, is largely unperturbed. The rally stalled on Friday, but last week’s jump in the S&P 500 was impressive (+2.64%). Real estate was very strong on Friday (1.50%), and second only to consumer discretionary last week. Consumer discretionary rose 5.74%, and real estate was up 5.71%.
The recovery in services inflation expected for 2021, has yet to get going. It is early days, and airline fares are one area where there should be significant base effects, after last year’s declines, pushing the annual rate up.
However, the re-opening of the US economy may not produce the expected rise in core inflation expected by markets.
Summary
• Cyclicals in the ascendency
• Inflation not the issue for markets anyway
• Record government borrowing and rising yields are the big risk for equities
