Last updated: 16:43 / Monday, 26 May 2014
followPioneer.com

Just When We Thought Yields Wouldn't Go Lower

Imagen
Just When We Thought Yields Wouldn't Go Lower
  • Pioneer Investments thinks that domestic services may be starting to put upward pressure on core CPI and PPI

U.S. Treasuries rallied last week, pushing yields to new 2014 lows – but why did it happen?  According to the blog followPioneer.com, by Pioneer Investments, war fears seem an unlikely explanation: gold and oil were well-behaved, and equities were flattish. U.S. economic fears couldn’t explain it - the data wasn’t bad - but low Eurozone GDP growth might have contributed. The trading desk buzz is that we’re seeing a short squeeze – there just aren’t enough bonds to go around.

Inflation Caution

Pioneer Investments thinks that domestic services may be starting to put upward pressure on core CPI and PPI. There’s little inflation visible in globally traded goods (import prices are down 0.3% year over year (y/y) and export prices are up 0.1%). Headline CPI rose 0.3% in April; core rose 0.2%. April CPI was up 2.0% y/y, while core was 1.8%. Nevertheless, the methodology used to calculate PPI has changed. The old Producer Price Index has been “PPI total final demand”. Let’s call it “new PPI”. New PPI rose 0.6% in April, far above expectations. Core was up 0.5%. Headline new PPI was up 2.1% y/y. Excluding food & energy, it was up 1.8% y/y. This is not just food and energy inflation—it’s also in the core. Sam Wardwell, CFA, Senior Vice President and Investment Strategist at Pioneer Investments notes that Alan Greenspan had this to say: “I don’t know whether or not that is other than a blip, but if inflation is beginning to pick up, it’s got to start somewhere, and it usually starts the way we’re looking at it.”

 

menu
menu