Bassanese Bites: Yields stabilise – April 12 2021
Solid U.S. economic growth indicators, along with dovish Fed comments, continued to support global equities last week – helped by a further stabilisation in bond yields despite simmering U.S. inflation concerns. The U.S. ISM service sector index soared to 63.7 in March (from a still strong but weather-affected 55.3 in February), with the price component up to 75 (the highest since June 2008) as rising energy costs and temporary supply chain bottlenecks created pricing pressure. Adding to market angst, U.S. producer prices rose a stronger than expected 1% in March to be up 4.2% over the year.
Investors, however, are trying to shrug off the inflation concerns – as evident with a solid 2.7% gain in the S&P 500 last week to record highs and a modest decline in U.S. 10-year bond yields to 1.66%. Fed commentary continues to suggest that any near-term lift in inflation is likely to be transitory, with the minutes to the latest Fed meeting indicating it will be “some time” before a tapering in bond purchases is contemplated.