Sector Update

October 25, 2021



For most of last week, yields moved in a bear steepener fashion. That is, longer-term yields moved higher while shorter maturities lagged or declined. This can be indicative of greater-than-expected inflationary pressures. This changed on Thursday as data pushed yields, measured cumulatively for the week, to a nearly parallel move on maturities greater than 3-years.

As we wrote last week, inflation concerns were already on the mind of many, including the Federal Reserve, who can’t afford to lose control of the inflation narrative. On Friday, the upward momentum in yields (see charts below) seemed to downshift as Fed Chair Powell said, “The risks are clearly now to longer and more-persistent bottlenecks, and thus to higher inflation.” One might think this would send yields higher; however, the acknowledgment of the issue along with assuring markets they’d use their tools to “guide” inflation down if it looked more persistent than transitory, sent yields down for the day.



Like last week (because trends aren’t established in a week), what might this indicate from a practical perspective to a portfolio manager? If (and this isn’t a small if) a longer-term flattening trend emerges – a barbell approach to purchases, rather than a typical ladder, could be beneficial if the Fed raises short-term rates sooner than later which in turn could moot any increases in longer-term yields as inflationary pressures subside and growth prospects potentially dim.



Today – Yields fall slightly, curve marginally steeper, stocks higher



Yields on 2-, 3-, and 5-year maturities at highs for 2021





Sector Commentary (click on links for more in-depth look)



What We’re Reading


Market Today | Daily

Weekly Recap | Weekly, Friday

Brokered Deposit Rate Indications | Weekly, Monday

Investment Alternatives Matrix | Weekly, Tuesday

MBS Prepay Commentary (October) | Monthly, 5th business day

SBA Prepay Commentary (October) | Monthly, 10th business day


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Vining Sparks: Coronavirus Chartbook and Coronavirus State Charts


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