October Outlook
October 19, 2021  |  By Hank Cunningham

With massive fiscal stimulus (and more expected to come), extremely accommodative monetary policy, and upside surprises on inflation, which threaten to remain at elevated levels, we anticipate that bond yields will continue to work themselves higher. Real yields are still negative, but less so and global growth has proven to be resilient.

The 10-year, currently at 1.60%, is approaching the 12-month high of 1.74%, which it reached this past March. As yields approach this level, we expect some consolidation, perhaps making 1.75% a reasonable year-end target.

Corporate bond markets have been well-behaved, absorbing high volumes of new issues. Yield spreads of high yield and investment-grade remain tight to government bonds and we expect little change in these spreads.

Overall, we may be in a bear market for bonds. The move higher in short-term yields is a harbinger of the tapering about to begin.

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