According to Michael Schumacher of Wells Fargo Securities, increased inflation from the supply chain crisis will boost bond yields in the coming weeks.
The company’s chief strategy officer expects the benchmark 10-year Treasury yield to reach 1.9% by the end of the year. This is 23% higher than Wednesday’s closing price.
“Number one is inflation. It’s everywhere,” he told CNBC’s “Trading Nation” on Wednesday.
Schumacher also notes expectation of how the Federal Reserve will react as a factor in raising yields. He added that several central banks, including Norway and New Zealand, have already adjusted their policy rates.
“The Fed Will Probably Go Down” [and] We will announce it next month,” he said. In our view, it will push the yield up. It will rise a bit further and fall in December.”
This is when Schumacher expects investors to exceed their debt limits, receive government funding and receive lower returns.
But Schumacher, who is bearish on bonds, thinks the decline is temporary.
“It all goes back to inflation,” he said. “It’ll be here for a while, and it really colors our market outlook.”
The latest economic indicators show higher-than-expected inflation. The labor ministry reported on Wednesday that the consumer price index rose 0.4% last month. This is an increase of 5.4 percent over the previous year. This is the highest year-on-year profit in more than 30 years.
“”[This is] This is not just a US issue. At this point, it really concerns the whole developed country,” Schumacher said.
Despite inflationary concerns, Schumacher is not in the stagflation camp. This refers to the pressure to push up prices during periods of slow growth.
Stagflation is “overrated”
“Frankly, it’s exaggerated,” he said. “People say, ‘Well, yeah, next year will have slower growth than this year.’ Well, that’s true, but how much is the problem, and 2022 growth is really a serious disappointment. Will we be? We don’t think so, and if you’re growing in the United States, it’s 2.[percent]-plus. Maybe it’s not really stable. “
He has been bullish on economic growth since the outbreak of the pandemic. Last December, Schumacher told Trading Nation that the COVID-19 vaccine would dramatically increase confidence in the economy and boost Treasury yields. Yields have risen 72% in the last 10 years since their interview.
From an investment perspective, Schumacher only considers long-term bonds as a short-term place to hide from stock market volatility. He thinks Treasury yields are unattractive because long-term investors are not keeping up with inflation.
“The Fed is very concerned about this, and Chair Powell made it very clear,” Schumacher said. “We think this will encourage Powell to push for tapering in a few weeks.”
Source link Wells Fargo calls for bearish bonds, citing supply chain crisis as risk