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Market Volatility Whipsaws Treasury Yields

Stock markets plunged along with Treasury yields on Monday before rebounding yesterday and into today. The 10 year T dropped to 1.14% from 1.30% on Monday as concerns mount about rising Covid cases. The “June narrative” whereby a highly vaccinated society reopens and economic activity booms accordingly is being replaced by concerns about the highly contagious Delta variant. The recovery may be volatile and asymmetrical among regions and sectors. Interestingly, when the 10 year T hit 1.14% on Monday, it was in the middle of the pandemic low (0.50%, July 2020) and high (1.77%, March 2021). For now, inflation fears seem to be ebbing. The next 2-3 months will be fascinating as the “base effects” subside, supply chains return to near normal, and CPI/PCE statistics start to increasingly matter to markets. Next week’s Fed meeting may be the last meeting that Fed officials can claim price increases are “transitory”. Also next week: CPI, core CPI, and PCE announcements. Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners