We’ve spent a lot of time talking about inflation lately, and as time goes on, inflation rises higher and higher. One big thing that isn’t getting talked about enough is how rising inflation affects bond yields.
Last week, we talked about the reflation period we’re in right now, as the U.S. inches closer to normalcy, but the Fed keeps printing money.
This week, Joy of the Trade’s Jeff Zananiri and I sat down for our mid-week roundtable to discuss the rising inflation we’re seeing… and how the Federal Reserve might be responsible for more than you think.
Look at what’s happening in Texas right now, with the deep freeze sending energy prices soaring. The Fed can’t be blamed for the weather, but the inflation caused by its money-printing strategy had already made energy prices climb. All the explosion needed was some kindling.
How Rising Inflation Affects Bond Yields… and Your Bank Account
If you’re wondering how rising inflation affects bond yields, just look at the economy right now. We’re seeing high-yield corporate, or “junk,” bonds yields at their lowest rates ever. On the other side, however, treasury yields are going up.
That’s not just crazy… it’s unsustainable.
The reason this can’t be sustained is because they’re junk bonds, which have a lot of debt. If paying off that debt, which runs through the treasury, is costing more, it’s going to become harder and harder for these companies to survive.
One of two things needs to happen, because both outcomes can’t be correct. Either treasury rates need to come down a little, or high-yield corporate bonds need to climb.
And there’s a good chance that treasury bonds will stay where they are… But corporate bonds are disconnected from what we’re seeing.
So what happens next?
Sit down with us as we talk about how rising inflation affects bond yields, Bitcoin and introduce a new service we’re offering, Burn Notice, which helps you take advantage of huge overnight market moves.
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