Daily Market Color June 18, 2021Short Term Yields Jump as Equities Rout Continues Yield curve continues to flatten while equities lose for 4th straight day Short-term yields continued to increase on a flattening curve as investors prepare for a more reactive Fed when it comes to inflation. The 2y UST yield rose 5 bps during trading to breach 0.25%, while the 10y decreased another 7 bps to close the week at 1.44%. Since the Fed announcement, the most significant move along the curve has come between the 5y and 30y yields, which has flattened to 111 bps (down from 140 bps before the Fed’s statement), the smallest spread since September. Equities dropped for the fourth straight day led by the DJIA, which closed down 1.58%. Fed President Bullard sees rate increases in 2022 Bullard commented today that inflationary pressures are becoming more prevalent than was anticipated just a few months ago. Bullard commented that the Fed’s guidance this week was “hawkish,” while his models shows inflation running at 3% in 2021 and 2.5% in 2022 before settling down to the Fed’s 2% target. His comments jolted markets sending short-term yields higher as investors position themselves for sooner than expected rate hikes. Next week’s economic data The flash PMI for June will be released on June 23, U.S. initial jobless claims & durable goods orders will print on June 24, while personal income & consumer spending for May will be released on June 25. Also, on June 25, we will get another reading into inflation when the core PCE price index prints.
