Inflation Concerns Tied to Stimulus, Stocks-Bonds Correlation

Will Stimulus Stoke Inflation? Stocks-Bonds Move in Tandem

By Blu Putnam, Chief Economist & Erik Norland, Senior Economist, CME Group

Will $1.9 Trillion Stimulus Be Inflationary?

  • Bond yields began rising even before stimulus was approved.
  • Improved growth, slightly higher inflation possibly priced into bonds.
  • Investors also expected higher Treasuries supply to finance stimulus.
  • Historical core inflation metrics still hovering around 2%.
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Change in Stocks-Bonds Correlation

  • On several days in February and March, stocks and bonds moved in tandem.
  • Since 1998, stocks and bonds have mostly moved in opposite directions.
  • Recent positive stocks-bonds correlation may signal inflation concerns.
  • A negative correlation signifies economic downturn, financial distress.
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