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February 23, 2021
Two-year inflation breakeven rate (the market’s future inflation view) is the highest in 12 years, raising the risk of an inflation surprise
Inflation isn’t a problem now, but financial markets are saying it could be soon. Traders are pricing in the possibility that Consumer Price Inflation (CPI) leaps to 2.66% from 1.4% today, judging by the two-year breakeven rate which has staged a stunning turnaround and sits at its highest point since 2008.
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Breakevens, a proxy for the CPI, are largely tracking the rise in oil prices, as energy is a large part of CPI. The key issue for fixed-income markets is whether inflation is more than just a jump in energy. Cornerstone Macro
Here’s another knock against putting all of your retirement-income eggs in the bond market basket. This week is ushering in record low yields of less than 4% for high-yield corporate debt.
February 2, 2021
Our research shows the GameStop controversy is localized in stocks. This has been a strange week. Never before has social media been used to move large chunks of the stock market and rattle parts of the thick-skinned hedge fund industry. In our view, professional traders are reducing their equity exposures given the unpredictability of what’s happening, which undercut the broad stock market indexes this week. During such times of volatility, Horizon Investments focuses on whether the ripples will turn into a wave of risk aversion that engulfs bonds, currencies, emerging markets or high-yield debt. Our
Market State monitor (see below) gives no indication of that yet. The correlation of moves across asset classes in the short-term is still low relative to the long-term (that’s indicated by a reading below zero). In other words, the world’s markets are still going their own ways, showing that this remains a localized stock market problem and not a systemic