The market seems to be signaling to the Fed that curbing inflationary pressures on consumers will not be a quick fix. Treasuries aren’t alone in this move as global bond yields are climbing as well.
September Composite PMI Outlook Index data increased to 58.4, the highest level since 2021. (1) A reading above 50 indicates expansion in the private sector, and this growth is occurring alongside severe supply chain bottlenecks stemming largely from the ongoing conflict with Iran. As a result, companies are likely to gain greater pricing power, adding further pressure to the inflation fight.
In addition, the Treasury sold $70 billion in 5-year notes today at a 5.033% cost to borrow, the highest since 2006 (2). The 30-year bond reached 5.40% as I write, and even the 2-year T is joining the move, touching an attractive 4.947%.
On the long end, municipal bonds are coming to market in many states with yields over 5%, translating to a taxable-equivalent better than 7.9% for high-income earners in high-tax states like NY & CA. For fixed-income investors in Treasuries and municipals, market participants are now seeing return opportunities not available in nearly two decades.
Between historically high Treasury yields and attractive tax-equivalent returns on Muni’s, investors have a rare opportunity to lock in income levels not seen in years.
