Macro Monitor

Wage inflation looked like it was finally taking off in October, but November's data showed a different picture, as four of the nine subsets (including Total Wage inflation) moved lower.

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Long term rates are "normally" higher than short term rates to compensate investors for the likely risk that inflation will undermine the value of their bonds.

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Long treasuries are still well above the underlying interest rate (real rate of 4%-5%). The inflation outlook remains tame.

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Among the industrial nations, U.S. bond market offers highest yields, a reversal from earlier in the decade. Inflation outlook positive.

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Among the industrial nations, U.S. bond market offers highest yields, a reversal from earlier in the decade...A return to “normalcy” implies falling US bond yields.

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Bond risk still considered well below potential equity market risk...longer term, bond potential returns at least equal to potential equity returns.

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How long can the Goldilocks’ economy keep going? The current economic expansion (at 25 quarters) is long in the tooth by historical standards. Inflation outlook improved. Shortage of treasury bonds to become a reality?

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Fed may tighten later in the year to slow down economy. Inflation cool, but wage pressures a worry. U.S. rates very competitive with foreign yields.

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Bond market looks attractive on 6-12 month basis. Economic expansion long in the tooth, but still surprisingly strong...Fed may tighten next time to slow down economy. Inflation cool, but wage pressures a worry.

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Economic expansion long in the tooth...Fed working to slow down the economy...Inflation cool...U.S. rates very competitive with foreign yields...strong dollar should continue to stimulate foreign bond buying.

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Economic expansion long in the tooth...Fed working to slow down the economy...Inflation cool...U.S. rates very competitive with foreign yields...strong dollar should continue to stimulate foreign bond buying.

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Bond rally should be rekindled by mid-year. U.S. yields remain relatively high compared to foreign yields. Bonds expected to outperform stocks over next 6-12 months.

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Further bond market weakness will be used as opportunity to boost T-bonds (Conventional Portfolio) and T-bond zeros (Unconventional Portfolio).

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No fixed income changes planned for January.  Significant bond market weakness would be viewed as opportunity to accumulate (7% area).

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Bond rally has further to go in 1997 (6% or lower) if nervous equity investors seek safer havens, economy slows, and foreign appetite for U.S. Fixed Income remains. U.S. yields remain relatively high.

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Bonds outperformed stocks over past two months. Most investors not well positioned to take advantage of an extended period of bond’s performance superiority. As inflation threat recedes and economy slows, bonds should continue to outperform.

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Bonds (including zeros) expected to outperform stocks over next 6-12 months. Economy should slow by year end (recession in 1997?). Inflation should remain under control.

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Bonds (including zeros) expected to outperform stocks over next 6-12 months...economy should slow by year end, inflation should remain under control, corporate earnings momentum expected to gradually fade.

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Bonds rallied in early August on tepid employment and inflation reports, lower deficit news, and (surprise) welfare legislation. This bond market rally looks like it could get legs.

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Bonds expected to outperform stocks over next 6-12 months...economy should slow, inflation should remain under control, and corporate earnings momentum should gradually fade.

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