Ahead of the conclusion of June’s Fed meeting and the release of the latest CPI report, NEPC’s Head of Asset Allocation, Phillip Nelson, spoke with The Wall Street Journal about the long-term outlook around consumer price increases and the impact that could have on treasury yields. View the article on The Wall Street Journal’s site here.
Treasury yields bounce back from early declines as the Fed is expected to keep rates unchanged tomorrow after ten consecutive increases. May consumer price data this morning supported the markets’ predominant view that the hiking cycle could take a break this month with a possible final uptick in July. BNP Paribas’ economists say in a note that “persistent stickiness in the core will keep more hawkish Fed officials committed to additional policy tightening in July.” The 10-year yield rises 0.074 percentage point to 3.838% and the two-year gains 0.104 pp to 4.694%, in both cases the highest level since early March.
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The 10-year Treasury yield could move above 4%, NEPC’s Phillip Nelson says. He thinks it is going to take some time for consumer price increases to slow down to a pace the Fed finds satisfactory. Until then, policy rates will remain high, pushing Treasury yields higher as markets adjust. Nelson sees the 10-year “somewhere close to the 4% range.” For most of this year, the benchmark has traded between 3.3% and 4.1% and is at 3.8% today. “Eventually, the long end of the Treasury market has to adjust to higher inflation expectations and so we can see 10-year, 30-year start moving north of 4% and that would be appropriate.”
Click here to continue reading the full Wall Street Journal article.