Yields And Inflation - Soaring? Not So Fast

Published Thu, 03 Dec 2020 08:58:14 -0500 on Seeking Alpha

Seeking AlphaYields And Inflation - Soaring? Not So FastDec. 3, 2020 8:58 AM ET|| About: iShares 7-10 Year Treasury Bond ETF (IEF), Includes: AGZ, AWTM, BBSA, BIL, BILS, BKT, BTYS, CLTL, DFVL, DFVS, DTUL, DTUS, DTYL, EDV, EGF, FIBR, FLAT, FLGV, GBIL, GNMA, GOVT, GSY, IEI, IVOL, LDSF, LTPZ, MBB, OPER, PBTP, PLW, PST, RINF, SCHO, SCHP, SCHQ, SCHR, SGOV, SHV, SHY, SPIP, SPMB, SPTI, SPTL, SPTS, STIP, STPP, STPZ, TAPR, TBF, TBJL, TBT, TBX, TDTF, TDTT, TFJL, TFLO, TIP, TIPX, TIPZ, TLH, TLT, TMF, TMV, TTT, TYD, TYO, UBT, USFR, UST, USTB, VGIT, VGLT, VGSH, VMBS, VRIG, VTIP, VUSTX, ZROZby: George DagninoGeorge Dagnino Growth At Reasonable Price, Momentum, medium-term horizon, Newsletter ProviderThe Peter Dag Portfolio.cls-1{fill:#024999;}SummaryThe government is throwing money at the pandemic.
The Fed is helping wholeheartedly.
And inflation and yields are confounding the experts.
In 2019 the general view was yields and inflation were going to rise. Of course, yields, which peaked in 2018, kept heading lower.
These forecasts were mostly based on the idea yields were too low. In 2020, with yields on 10-year Treasury bonds falling below 1,0%, the outlook for bonds became even more bearish. The reason for the bearish forecasts (yields to move higher) was essentially based on excessive growth of liquidity implemented by the Administration and the Fed.
However, it is quite possible there are more profound forces at work in the near-term and long-term. Even a cursory view of the trend of yields, nominal GDP growth, and inflation suggests there is a strong relationship between the three measures (see chart).
What is particularly astounding is the relentless rise of the three measures until 1982 and their inexorable decline of the last 40 years. What is even more amazing is this secular decline has been taking place during an aggressive execution of economic and social programs by several administrations accompanied by soaring debt.
Although I dealt in detail... Read more