Inflation and Bond Rates: The Impact of the Fed

With it being the Thanksgiving holiday weekend, now is a great time to revisit the single hottest topic of 2022: inflation. So check out this piece from earlier this year that has plenty of still-applicable information.

I hope you had a lovely turkey day and are spending time with your loved ones. We’ll be back at it at 9 a.m. Monday, ready to Crush the Open!

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Originally posted on Feb. 17, 2022

We’ve spent a lot of time talking about inflation lately, and as time goes on, inflation keeps rising. One big thing that isn’t talked about enough is how rising inflation affects bond yields.

Senior Strategist Roger Scott and I sat down for our midweek roundtable to discuss the rising inflation we’re seeing… and how the Federal Reserve might be responsible for more than you think.

Look at what’s happening in Texas right now, with the deep freeze sending energy prices soaring. The Fed can’t be blamed for the weather, but the inflation caused by its money-printing strategy had already made energy prices climb. All the explosion needed was some kindling.

How Rising Inflation Affects Bond Yields… and Your Bank Account

If you’re wondering how rising inflation affects bond yields, just look at the economy right now. We’re seeing high-yield corporate bonds yields at their lowest rates ever. On the other side, however, Treasury yields are going up.

That’s not just crazy… it’s unsustainable.

The reason is because they’re junk bonds, which have a lot of debt. If paying off that debt, which runs through the Treasury, is costing more, it’s going to be harder and harder for these companies to survive.

One of two things needs to happen because both outcomes can’t be correct. Either Treasury rates need to come down a little, or high-yield corporate bonds need to climb.

And there’s a good chance that Treasurys will stay where they are… But corporate bonds are disconnected from what we’re seeing.

So what happens next?

Sit down with us as we talk about how rising inflation affects bond yields.

As always, feel free to email your trading questions to jeff@joyofthetrade.com and make sure to subscribe to our YouTube channel.

Why the Best Set-Ups Happen When Stocks Are Falling on Monday

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