December Outlook
December 8, 2020  |  By Hank Cunningham

Our view remains that nominal bond yields will trend higher. With Central Banks anchoring short-term yields indefinitely, this argues for a steeper yield curve. The question remains about how serious the Federal Reserve will become when the ten-year breaches 1%. Thus far, there has been no mention of yield curve control.

Inflation expectations resumed their climb and are approaching 2%. With upwards pressure on prices of all kinds growing in the pipeline, it seems likely that inflation will exceed 2% in 2021, putting further upward pressure on nominal bond yields. With vaccines about to roll out and with further fiscal stimulus likely to come from the new administration in Washington, the recovery should gather pace again.

Corporate bond yields have fallen to the point where they are close to offering zero yield after inflation and are unlikely to fall further, especially in light of rising treasury yields.

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