The US bond market is signalling concern that Russia’s invasion of Ukraine could lead to persistent inflation and weak economic growth.
following the series of hikes expected to begin next month. Bank of America strategists advised clients to start positioning for stagflation, a mix of rising prices and stagnant growth that the US has not seen in a generation.
The Treasury market briefly served as a refuge for investors after the Russian invasion set stock prices sliding worldwide. But equities rebounded, and yields followed suit as anticipation of rising interest rates moved back to the foreground.The benchmark 10-year yield ended the week just below 2 per cent, near the highs hit earlier this month. Yet two-year yields jumped even more, narrowing the gap between the two to just under 40 basis points from 45.5 basis points a week earlier.
On Friday, the Labor Department will release its monthly jobs report, which is expected to show wage pressures accelerated even as payroll growth slowed amid a tight labour market. “The takeaway is that inflation will stay elevated, and the expected Fed tightening is going to be the catalyst for slower growth,” said Kathy Jones, chief fixed-income strategist at Charles Schwab“I won’t call it stagflation. Growth isn’t stagnant but is going to slow down, coupled with that inflation impulse is going to persist for a little longer.
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