Surging Treasury yields complicate the Fed’s rate path
What surging Treasury yields mean for Canadian advisors
Manulife Investment Management senior global macro strategist Dominique Lapointe has described sticky US inflation as already reshaping the fixed income outlook. US yields at multi-decade highs are affecting government bond pricing and borrowing costs in global markets. That includes Canadian advisors with US fixed income exposure.
Not all analysts expect an aggressive Fed response. Citigroup economist Andrew Hollenhorst argued in a note that the yield rise reflects stronger expected growth, not a Fed falling behind on inflation.
“The rise in yields has not been due to expectations of a too-dovish Fed allowing inflation to persistently exceed target,” Hollenhorst wrote. “It should not be surprising that this has led to both higher shorter-term and longer-term yields.”
New York Fed President John Williams said Thursday that another rate hike by year-end is “reasonable.” He added that officials need to watch the data before committing to further increases. Philadelphia Fed President Anna Paulson described potential tightening as “modest.”
Warsh’s market-guided approach adds uncertainty
Federal Reserve Chairman Kevin Warsh has emphasized letting markets help guide policy. UBS economist Jonathan Pingle wrote that Warsh places more weight on market signals than on economic data. This is a shift from the forward-guidance approach used after the 2008 financial crisis.
