What The Bond Market Is Expecting

Published on: 05/18/2021

In this video commentary, Tony Ogorek and Jeff Viksjo discuss what the bond market is saying will happen to inflation.

Music: https://www.bensound.com




Hi I’m Tony Ogorek, I’m here with our Portfolio Manager, Jeff Viksjo.  You know Jeff, stocks and bonds tell different stories about inflation.  Today, let’s take a look at a chart that speaks to what the bond market is saying. What does this show us, Jeff?



So this chart gets to that.  The green line is what the bond market expects inflation to average over the next 10 years, ok, and the blue line is what it expects to average over the next 5. So over the next 5 it’s 2.5 currently, then over the next 10 it’s 2.3.  So again, the bond market’s saying everything’s ok here.  The Fed would certainly be ok with this. 

The second point that’s worth pointing out here is, the green line historically has been above the blue, meaning inflation would increase in the future, the 10 year is higher the 5.  But it’s flipped recently, now the 5 year is higher than the 10.  So what the bond market is saying it that, yes, inflation will increase in the short term, but it’s transitory, it’s going to go down in the long term.


Yeah, and you know the interesting thing is the longer you go out on that yield curve the more risk you’re assuming, right?  Because you don’t know what’s going to be happening with inflation.  So, like Jeff says, typically, that green line is really gonna be above the blue line, and it’s sort of an anomaly that that’s happening here.

One other point, is that these breaking rates that we are talking about, are set by some of the most sophisticated financial people out there.  They are set by central banks, by major corporations, by pension funds, you name it, that are buying these securities and they do that on a daily basis.  In the event they felt that inflation was going to be a significant concern over the next 3 to 5 years and going forward, trust me, these yields would be up significantly.  But we have not seen that yet.

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Sister Emily Bloom July 22 2021

Thank you for your information and for your concern about your clients. OWM is concerned that the clients "prosper".