Weekly Market Recap
Is this the real life?
30/08/2021
Week in review
- U.S. and Eurozone PMIs decline
- Australia private capex rose 4.4% q/q for 2Q
- Australia retail sales fall 2.7% m/m in July
Week ahead
- Australia 2Q real GDP
- U.S. nonfarm payrolls
- China PMI for manufacturing
Thought of the week
U.S Treasury yields started their slow rise last week as concerns over waning economic momentum faded and COVID case numbers rolled over in key markets, such as China. With growing expectations that the U.S. Federal Reserve (the Fed) will begin tapering their bond purchases later this year, bond yields should continue to rise. Market based measures of long run inflation, such as the 5y/5y swaps market have remained relatively steady despite the sharp rise in inflation in the U.S. in recent months. If inflation expectations are fairly well anchored, it implies that nominal bond yields will be driven by higher real yields. U.S. real yields have been well into negative territory for some time and the lowest in over a decade. But as the Fed starts its taper and market focus turns to the path for interest rates once tapering ends, real yields should start to rise, potentially undercutting the valuations for riskier asset classes. Investors would be wise to watch movement in real yields.
U.S. 10-year Treasury yield
Nominal and real yield