ETFdb Logo
  • ETF Database
  • Channels
    • Themes
      • Active ETF
      • Alternatives Channel
      • Artificial Intelligence
      • China Insights
      • Climate Insights
      • Core Strategies
      • Crypto
      • Disruptive Technology
      • Energy Infrastructure
      • ETF Building Blocks
      • ETF Education
      • ETF Investing
      • ETF Strategist
      • Faith-Based Investing
      • Financial Literacy
      • Fixed Income
      • Free Cash Flow
      • Innovative ETFs
      • Invest Beyond Cash
      • Leveraged & Inverse
      • Modern Alpha
      • Portfolio Strategies
      • Tax Efficient Income
    • Asset Class
      • Equity
        • U.S. Equity
        • Int'l Developed
        • Emerging Market Equities
      • Alternatives
        • Gold/Silver/Critical Materials
        • Crypytocurrency
        • Currency
        • Volatility
      • Fixed Income
        • Investment Grade Corporates
        • US Treasuries & TIPS
        • High Yield Corporates
        • Int'l Fixed Income
    • ETF Ecosystem
    • ETFs in Canada
    • Market Outlook
    • Crypto ETF Hub
  • Tools
    • ETF Screener
    • ETF Country Exposure Tool
    • ETF Database Categories
    • Indexes
    • Scenario Analysis
    • Watchlists
    • Head-To-Head ETF Comparison Tool
    • Mutual Fund To ETF Converter
    • ETF Stock Exposure Tool
    • ETF Issuer Fund Flows
  • Research
    • ETF Education
    • Equity Investing
    • Dividend ETFs
    • Leveraged ETFs
    • Inverse ETFs
    • Index Education
    • Index Insights
    • Top ETF Sectors
    • Top ETF Issuers
    • Top ETF Industries
  • Webcasts
  • Themes
    • AI ETFs
    • Blockchain ETFs
    • See all Thematic Investing ETF themes
    • ESG Investing
    • Marijuana ETFs
  • Multimedia
    • ETF 360 Video Series
    • ETF of the Week Podcast
    • Gaining Perspective Podcast
    • ETF Prime Podcast
    • Video
  • Company
    • About VettaFi
    • Get VettaFi’ed
  • PRO
    • Pro Content
    • Pro Tools
    • Advanced
    • FAQ
    • Pricing
    • Free Sign Up
    • Login
  1. ETF Strategist Channel
  2. Bond Markets Give Thanks as Inflation Moderates
ETF Strategist Channel
Share

Bond Markets Give Thanks as Inflation Moderates

Sage Advisory   Nov 20, 2023
2023-11-20

By Komson Silapachai, Partner, Research & Portfolio Strategy

Last week produced a flurry of inflation data points, and the bottom line is that inflation is moderating but we’re not out of the woods yet. The Fed is going to want to see inflation get closer to the target rate of 2%, so expect rates to hold steady through the first half of 2024. This is good news for fixed income investors; more on that here as well as here. The following is a recap of inflation data and how the market has priced recent news.

October’s inflation prints showed signs of cooling prices. Core CPI rose by only 0.23%, lower than the Street’s expectations of a 0.3% increase. The annual rate of core CPI now stands at 4.0%, down from 4.1% in September. Notably, auto-related categories experienced declining prices despite the recent auto strikes. Core services was softer across the board, with owners’ equivalent rent decelerating after a sharp increase in September. CPI including food and energy was unchanged in October and up 3.2% YoY. Producer prices also surprised to the downside, which added to the slowing inflation narrative.

Consumer Price Index
Source: Sage, Bloomberg

Retail sales were not as bad as expected. Retail sales were not as bad as feared, falling 0.1% for the month versus Street forecasts of down -0.3%. Gasoline, auto sales, and building materials were the main negative contributors, while core retail sales grew by 0.2%. While the economy is showing signs of cooling, the pace has been slower than expected heading into the holidays.

Interest rates fell sharply in response to a downside surprise in US CPI data, and the yield curve shifted lower across the board. The 2Y treasury yield fell 16 basis points, while the 10Y treasury yield fell 21 basis points. Credit spreads compressed alongside the rally in risk assets, with IG corporate spreads tightening by 5 basis points to 1.17%. High yield spreads remained unchanged last week. The Barclays Aggregate Index turned positive on the year, with a +0.38% total return.

Rate cuts in early 2024? Coupled with the indication from the FOMC that the Fed could be done with hikes, the data above supports the notion that the last rate hike was in July 2023, and cuts could come sooner. Interest rate markets priced in a 35% probability of a rate cut in March 2024 and four rate cuts total next year. We see rate cuts in the first half of 2024 as unlikely, as inflation will probably remain above the target rate of 2% for much of next year. The cost of being “ahead of the curve” and cutting rates too early, risking a reacceleration in inflation, would outweigh the potential benefits. We believe the FOMC will tolerate weaker data for longer, which should result in rate cuts beginning later than the market expects.


Content continues below advertisement

Market-Implied Fed Hike Path
Source: Sage, Bloomberg

Disclosures: This is for informational purposes only and is not intended as investment advice or an offer or solicitation with respect to the purchase or sale of any security, strategy or investment product. Although the statements of fact, information, charts, analysis and data in this report have been obtained from, and are based upon, sources Sage believes to be reliable, we do not guarantee their accuracy, and the underlying information, data, figures and publicly available information has not been verified or audited for accuracy or completeness by Sage. Additionally, we do not represent that the information, data, analysis and charts are accurate or complete, and as such should not be relied upon as such. All results included in this report constitute Sage’s opinions as of the date of this report and are subject to change without notice due to various factors, such as market conditions. Investors should make their own decisions on investment strategies based on their specific investment objectives and financial circumstances. All investments contain risk and may lose value. Past performance is not a guarantee of future results.

Sage Advisory Services, Ltd. Co. is a registered investment adviser that provides investment management services for a variety of institutions and high net worth individuals. For additional information on Sage and its investment management services, please view our website at sageadvisory.com, or refer to our Form ADV, which is available upon request by calling 512.327.5530.

For more news, information, and analysis, visit the ETF Strategist Channel.

Loading Articles...
Our Sites
  • VettaFi
  • Advisor Perspectives
  • ETF Trends
Tools
  • ETF Screener
  • Mutual Fund to ETF Converter
  • Head-To-Head ETF Comparison
  • ETF Country Exposure Tool
  • ETF Stock Exposure Tool
  • ETF Database Pro
More Tools
  • Financial Advisor & RIA Center
Explore ETFs
  • ETF News
  • ETF Category Reports
  • Premium Articles
  • Alphabetical Listing of ETFs
  • Browse ETFs by ETF Database Category
  • Browse ETFs by Index
  • Browse ETFs by Issuer
  • Compare ETFs
Information
  • Contact Us
  • Terms of Use and Privacy Policy
  • © 2025 VettaFi LLC. All rights reserved.

Advertisement

Is Your Portfolio Positioned With Enough Global Exposure?

ETF Education Channel

How to Allocate Commodities in Portfolios

Tom LydonApr 26, 2022
2022-04-26

A long-running debate in asset allocation circles is how much of a portfolio an investor should...

Core Strategies Channel

Why ETFs Experience Limit Up/Down Protections

Karrie GordonMay 13, 2022
2022-05-13

In a digital age where information moves in milliseconds and millions of participants can transact...

}
X