Inflation Forces The Fed's Hand | Joseph Wang & George Goncalves
Apr 13, 2022
54:10
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Quick takeaways
Inflation erodes purchasing power and negatively impacts returns on bond investments.
Increased net issuance and quantitative tightening could result in a significant amount of new supply in the Treasury market.
The current level of reserves in the system and the narrowing of balance sheets in the financial system pose a risk of a break in the bond market, potentially leading to a risk-off reaction.
Deep dives
Inflation is a major concern for the bond market
Inflation erodes purchasing power and negatively impacts returns on bond investments.
Record amounts of supply in the Treasury market
Increased net issuance and quantitative tightening will result in a significant amount of new supply in the Treasury market. It may exceed the market's ability to absorb it in the short term.
The potential impact of quantitative tightening on the bond market
Quantitative tightening, combined with record net issuance, could lead to higher prices to attract buyers and structural challenges in financing the Treasury market.
The risk of a break in the bond market
The current level of reserves in the system and the narrowing of balance sheets in the financial system pose a risk of a break in the bond market, potentially leading to a risk-off reaction.
The possible paradigm shift in bond yields
Based on historical trends and current market dynamics, there is a possibility of a paradigm shift in bond yields, possibly leading to a more sideways movement in rates or a change in the direction of bond yields.
Blockworks' Jack Farley, Host of Forward Guidance goes LIVE with Joseph Wang and George Goncalves to discuss the bond market, plumbing, inflation & more.
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Follow Jack Farley @JackFarley96
Follow Joseph Wang @FedGuy12
Follow George Goncalves @bondstrategist
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