August 25, 2021 | By Hank Cunningham
The outlook remains challenging for fixed income investors. While bond yields have risen twenty basis points from their early August lows, they remain well below the rate of inflation. Of late, there has been a discernible shift in the consensus that recent inflation prints will prove to be transitory. Inflation is proving to be stickier than previously thought. Also, the Fed is preparing the market for the beginning of the tapering of its massive monthly bond purchase program of $120 billion. At the margin, these developments favour an upward bias to bond yields, which is more likely given the probability of even more fiscal stimulus.
Overall, the lower-for-longer environment for yields will persist. Fixed income investors will thus face a period of modest returns.