Extract from our "High US Yields Not Likely Reflecting Sticky Inflation" research paper, published on the 8th September 2023. Register for a free trial* to access the full paper.
In this note, we focus on the period in the mid-1970s between the two oil price and US inflation spikes. A popular argument now, promoted by Prof. Larry Summers, that US inflation will remain sticky at around the current levels, cites the experience during the mid-1970s as proof that inflation in the US can and should stay elevated in the months ahead. We disagree and provide counter-arguments. The 10Y US Treasury yield being above 4.0 percent may, instead, reflect supply and demand considerations rather than inflation expectations, in our opinion. High US bond yields have pushed the dollar higher and depressed equities. Our view is that this is temporary and these market trends should reverse eventually.
The full report contains the following sections:
- Six percent inflation during 1975-1978
- 2023 is not 1975
- Why are the 10Y UST yields so high?
- Why is the dollar not weaker?
- Our market outlook for the rest of the year
- Bottom line
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