Remember when Treasury yields were rising rapidly on the back of inflation fears? Well, the worries about price increases are still around in principle — but Treasury yields look really different.
The 10-year US government bond yield slipped below 1.5% today, marking its lowest level since early March.
So what happened?
Economists predicted prices would rise when the economy reopens. As far as we can tell, that has proven correct. But there were worries that an inflation spike could force the Federal Reserve to change its monetary policy stance from the currently ultra-low interest rates and billions in monthly asset purchases. That pushed Treasury yields higher, because they track future interest rate expectations.
But here's what changed things recently:
"The May jobs report was on the weaker side of expectations which all else equal would imply a later taper of Fed asset purchases," said economists at Citi (C) in a note to clients.
The May jobs report was the second report in a row that underperformed expectations by quite a bit.
That said, central bank officials have recently seemed more open to discussing the eventual tapering of monthly purchases, and shortages of materials, as well as workers, are only adding to inflationary pressures, the Citi economists said.
Sounds like a wait and see game.
The next Fed monetary policy update is scheduled for next Wednesday.