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Investment strategy
November 7, 2021

The environment for humans and bonds

November 7, 2021
David Bailin
Chief Investment Officer and Global Head of Investments
Steven Wieting
Chief Investment Strategist & Chief Economist
SUMMARY

Q4 2021 began with the US adding 531,000 new jobs in October, a positive sign for the pace of economic growth, but far stronger than can be sustained in the long run by US demographics. We see the “COVID bounce-back” and policy distortions significantly boosting growth and inflation.

  • In this climate, bond investors still cannot reconcile 10-year US Treasury notes remaining stuck near 1.5%. A fall in yields on November 5th came despite the Fed finally beginning to reduce the pace of Quantitative Easing (QE) this month.
  • The Fed’s action seems late and timid for those who see inflation in a lasting acceleration, yet the US dollar index has jumped 1.5% since Fed Chair Powell “pre-announced” of tapering in late September. This is a significant indicator of confidence in US policy and the future stability of US purchasing power relative to other currencies.
  • Bond yields are set globally in markets with open capital accounts. The global yield environment is even lower than in the US, and refuses to budge. We also believe the period of central bank “Financial Repression” will not end swiftly even if the Fed and a few others move away from crisis-level stimulus.
  • Leaders from around the world gathered in Glasgow for the UNs 26th Conference on Climate change. Determined and detailed pledges to halt deforestation and phase out coal offers a view of the path to the future. At the same time, post-pandemic economic growth and shortages are driving fossil fuel prices higher making alternative energy investments more attractive.
  • On November 5, the House passed a roughly $1 trillion infrastructure bipartisan bill. We examine which industries could stand out as winners and how the bill echoes our unstoppable trends.
CIO Strategy Bulletin (PDF 795.53 KB)

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