Bonds were first labeled “certificates of confiscation” in the late 1970s when bond valuations fell sharply under the weight of rising inflation. This year looks like a near replay, with certain inflation measures hitting double digits while interest rates adjust rapidly to the new environment. After suffering the steepest quarterly loss in more than 40 years, bond market performance continues to struggle during April, down nearly 3%. With Federal Reserve (Fed) officials nearly across the board acknowledging the need for more aggressive monetary tightening, the upward pressure on interest rates is likely to remain in place until the economy gets much better news on inflation.
This week’s economic calendar will shed more light on the impact of higher mortgage rates on the housing market, with housing starts data being released on Tuesday and existing home sales statistics on Wednesday. Additionally, the release of the Fed’s “Beige Book” on Wednesday will be closely watched given the growing fears that tighter monetary policy could tip the economy into recession.
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