Treasury Yields Climb as Consumer Inflation Expectations Increase
Bloomberg reported that Treasury yields climbed after data showed a further increase in consumer year-ahead inflation expectations, leading some traders to take profits on dovish Federal Reserve wagers.
According to Bloomberg, in a thin trading session ahead of the Thanksgiving holiday, two-year US yields climbed past 4.9%. The S&P 500 edged higher, with Amazon.com Inc. climbing ahead of Black Friday and Cyber Monday sales. Microsoft Corp. gained on news Sam Altman will return to lead OpenAI. Nvidia Corp. dropped after its results, and the dollar rose while oil slid.
Americans expect inflation to increase at an annual rate of 4.5% over the next year, up from the 4.4% expected earlier in the month, according to the final November reading from the University of Michigan. They also see costs rising 3.2% over the next five to 10 years, as reported by Bloomberg.
For a data-dependent Fed, this increase in consumer inflation expectations is not good news. Quincy Krosby, chief global strategist for LPL Financial, explained, “they do not want to see consumer inflation expectations become unanchored, since historically it becomes increasingly difficult to reset consumer psychology towards a lower inflationary environment.”
Meanwhile, applications for US jobless benefits fell last week after a run of increases, offering some optimism in an otherwise cooling labor market. Durable goods orders also declined more than expected in October, as commercial aircraft bookings retreated and demand weakened for business equipment.
The article also noted a liquidation of dovish hedges in the SOFR options market, indicating that traders are taking profits on dovish Fed wagers placed as far back as September.
Equities have extended their November gains, and the S&P 500 is expected to rally to a record high next year. According to Lori Calvasina at RBC Capital Markets, positive sentiment and resilient valuations will contribute to this. Calvasina noted that “valuations can stay higher than many investors realize,” and that cooling inflation should support price-to-earnings multiples.
Finally, oil slumped as the OPEC+ meeting that had been set for the weekend was delayed.
The article also highlighted corporate highlights, including Boeing Co.’s largest 737 Max variant being granted type-inspection authorization, Broadcom Inc.’s completed takeover of software maker VMware Inc., and Deere & Co.’s forecast of smaller-than-expected profit next year. Other companies mentioned include Autodesk Inc., Guess? Inc., Nordstrom Inc., Urban Outfitters Inc., and Virgin Galactic Holdings Inc.
The article concluded with a summary of the main moves in markets, such as stocks, currencies, cryptocurrencies, bonds, and commodities.
This story was produced with the assistance of Bloomberg Automation.
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