McCullough: Bond yields are falling on today’s Producer Price Index data.
Here’s the chart (see below). The way to read this chart is the pink line of headline PPI is all the way up at 3.3%, but it’s slowed to down -10 basis points from an 80-month high in the prior month.
If you’re really good at math. That was when? In 2011, back when Bernanke said there was absolutely no inflation. That’s the last time inflation was ripping to the cycle highs. So that was a long time ago.
The PPI series has always been mean-reverting in nature. So when you get to the top of a cycle high, it’s very dangerous to be betting on inflation after the fact.
By the way, we just had the most Treasury bond issuance in almost the history of Treasury bond issuance on a weekly basis and bond yields are going to be down on the week.
Here’s another important point. Our call is that the U.S. is headed to Quad 4 (Growth and Inflation slowing on a year-over-year basis) by 4Q 2018. The top asset allocations in that environment are:
It’s pretty easy. Right now, bond yields are just chopping people up and making lower highs.