The bond market sold off today, with fresh concerns about the outlook for inflation after the June CPI showed prices rose the most since the beginning of the year, and continued threats from President Trump to fire Federal Reserve Chairman Jerome Powell. The 30-year and 20-year Treasuries are reaching 5.07% as I write.
In addition, the rise in CPI signals that policymakers may not be inclined to cut interest rates a quarter point at the next Federal Reserve meeting. The thought now is that there may be only one cut in 2025.
June’s CPI report showed that prices and inflation are accelerating. With the uncertainty of the tariff deals on the table and threats of unrealistic percentage tariff rates imposed on our trading partners, investors and consumers are now grappling with the hope that tariff inflation will be short-lived and coming to terms with the thought that there will not be a quick resolution to higher prices.
As investors watch the yields drift higher, opportunities present themselves for those waiting for fixed income yields to produce very attractive levels. Long-term Muni yields have been at or slightly higher than 5% on quality names, and for residents in high-tax states like California, New York, and New Jersey, the after-tax equivalents are very enticing.
