Peak Growth Fears Captured In Record Low Real Yields
By Laura Cooper, Bloomberg reporter and macro commentator
U.S. real yields hitting record lows captures the cautious mood in markets –- and expectations for policymakers to ease up on the hawkish tone amid rising virus and growth risks. The move looks overdone, with a U.S. recovery still strong despite peak growth in 2Q.
Money markets have pared back rate-hike bets amid concerns the delta variant could see growth recoveries stumble, warranting ongoing monetary accommodation. The implied yield of the December 2022 Eurodollar futures has slipped from the late June highs, with all eyes turning to the FOMC later this week. Easing growth optimism, renewed market volatility and virus uncertainty reduces the likelihood of a hawkish surprise with those tapering discussions likely to continue ahead of Jackson Hole.
Of course, the virus spread may not materially thwart the recovery. Slower growth is inevitable after a robust 2Q, to be captured in data this week. And inflation coming in hotter-than-expected with another core PCE print due this week warrants attention from the Fed. U.S. breakeven rates remaining range-bound since early June suggests concerns over price pressures remain.
But with growth fears creeping back into the market narrative, real yields remain on the back foot, keeping the greenback struggling for direction amid haven bids and caution evident in U.S. equities.
Mon, 07/26/2021 – 15:47