The yield of ten-year US bonds broke through 2% amid record inflation

Доходность десятилетних облигаций США пробила 2% на фоне рекордной инфляции

Investors' concerns about the share market continue to grow.

Record inflation

In January, consumer prices in the US increased more than a year, than the experts expected, - on 7,5%. This is the highest increase since February 1982.. So, fuel prices have risen 47%, for used cars 41%, for food - 7%.

This increase in prices was caused by a lack of supply due to supply disruptions., high consumer demand, as well as the soft policy of the regulator. US Inflation Rate Holds Above Target Since March 2021 FED in 2%. And only recently the regulator recognized, that inflation is not "temporary".

"We believe, that a high base and partial easing of the deficit will lower inflation in 2022, although the data say, that for a while it will remain well above the Fed's goal.", - said the research company Capital Economics.

Доходность десятилетних облигаций США пробила 2% на фоне рекордной инфляции

Rate expectations

Just six months ago, the Fed was not going to raise rates until at least 2023. But along with the rise in prices, the mood of the regulator also changed.. So, at its meeting in December, the commission voted for a threefold increase in the rate on 0,25% during a year. And in January, Fed Chairman Jerome Powell said: if required, the rate will be raised even more aggressively.

According to the CME exchange, after the publication of inflation data, the probability of an increase in the rate immediately by 0,5% at a meeting in March grew from 25 to 44%.

“After another jump in inflation, the market began to be even more afraid of the aggressive behavior of the Fed. And this worry won't go away, until there are signs, that inflation is under control, - consider in the consulting company LPL Financial.

Bond yield

10 January 10-year Treasury yields increased to the level of August 2019 - 2,05%. And the two-year yield, who are more responsive to Fed policy changes, jumped immediately by 0.26 percentage points, to 1,63%. This is the biggest daily jump since 2009..

The Fed rate and bond yields are factors, that affect the share price, especially fast-growing companies like tech. Many investors value companies based on their future cash flows.. And with rate hikes and expensive money, those future flows become less valuable to investors.. And the growing profitability of safe instruments, e.g. bonds and deposits, reduces the risk premium for investing in overvalued assets.

  Bundle of investment news: Internet of Things and Problematic IPOs

Доходность десятилетних облигаций США пробила 2% на фоне рекордной инфляции

Stock market

10 January amid the announcement of inflation data, the index S&P 500 fell by 1,8%. Here, the technology sector has lost more than others - 2,8%. From 11 industries did not sink only the sector of essential goods, who grew up on 0,3%.

From the beginning of 2022, investors expect a rate hike, sell expensive growth stocks and shift into value companies. Only a couple of sectors are showing positive returns this year: oil and gas — 23%, financial - 4%. Here are the technologies, communications and real estate sank by 8-11%.

It is on value and cyclical stocks that Evercore ISI analysts, Truist and Charles Schwab advise investors to pay attention.

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