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  • John Pickart

CPI > HY

Let's hope that inflation is transitory as the YoY change in CPI now exceeds the yields of both the 10-yr U.S. Treasury AND BofA's U.S. High Yield Index. The chart shows that the change in CPI (black line) is higher than junk bond yields for the first time. The High Yield Index is at 3.95% compared with the 5.32% YoY change in the CPI. Even the CCC & lower High Yield Index, not shown, barely exceeds CPI with a yield of 6.63%.


On a YoY basis, the CPI is subject to base effects from last year's lockdown and recession. Going forward, the YoY change may ease but inflation expectations may be building as price increases are real. If inflation persists, bond prices could experience significant losses. For instance, the duration of the U.S. 10-year Treasury note is over 9.


Of course, hope is not a strategy so invest accordingly. More to ponder in this extraordinary period. Feel free to reach out to me with questions and comments.



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