One of MRB’s investment themes has been that the U.S. Treasury market would lose an anchor that had historically helped hold down yields, namely depressed German and Japanese bond yields. This bodes poorly for U.S. and global yields over the long haul. Notably, German and Japanese 10-year government bond yields have diverged from the U.S. during the past year, hitting new highs for the cycle in contrast with the 10-year Treasury yield. In turn, these bond markets had flipped from helping hold down yields to now pressuring them higher.
There is now another anchor that is in the process of being lost that also is bearish for bonds. Two previously deflationary forces on U.S. import prices are shifting to becoming sources of upward price pressures: Chinese and Mexican export prices to the U.S. have recently perked up. U.S. imports are not a major factor in driving overall U.S. consumer price inflation, but on the margin, will add to the existing inflationary backdrop.
