April Outlook
April 13, 2021  |  By Hank Cunningham

Higher yields likely lie ahead for bonds; the near-term target is 2% for the ten-year U.S. Treasury and 2.25% later this year.

The factors that led to recent upticks in yields remain in place, principally massive fiscal and monetary stimuli. Consensus had expected that the recovery would return North American economies to pre-pandemic growth rates. This no longer appears to be the case, as the recovery is gaining strength, producing new record highs in key statistics and, importantly, is producing an uptick in inflation, which may not be just transitory. The massive fiscal and monetary stimuli should continue to feed into growth; the Fed has stated its willingness to allow inflation to exceed its 2% target for an uncertain amount of time before taking action to rein in monetary stimulus.

The result will likely be higher bond yields. Corporate yield spreads will remain compressed but corporate bond yields will push higher with the rising government yields.

Thus, fixed income performance will be modest at best.

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