Treasuries Stabilize as Asian Fears Subside, Inflation Rumbles

Both the Japanese and Chinese induced “taper tantrums” appear to be false alarms or saber rattling. The 10 year treasury yields jumped to 2.60% on rumors and reports of less bond buying (of Japanese bonds) from the Bank of Japan and less buying of US Treasuries from China. The Bank of Japan purchase adjustment may be technical and markets are not yet convinced that the stimulus policy has been abated. But the BOJ’s actions will be closely watched as it is the last major central bank in “maximum” accommodative policy mode with regards to aggressive bond buying. The China situation is interesting, the state foreign exchange regulator refuted the news reports of an end to bond buying as “fake news”. But why did they wait a full day as markets sold off? Maybe it was a reminder to the US as to the power and influence they have over our rates and economy in advance of some major trade decisions. What about inflation? Is 2018 finally the year that prices move upward in a meaningful way? Last week’s CPI showed some strength, oil seems to be strengthening at a key technical level of $60 barrel (considered a minimum level that encourages more capital spending and exploration) and some cities are reporting worker shortages and wage inflation (an all-important metric for the Fed). Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners