Bond yields rise during a volatile first week in the market.

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January 10, 2022
  • Global markets started off 2022 with some volatility. We saw global markets (represented by the MSCI All Country World Index) down -1.5% and domestic stocks (represented by the S&P 500 Index) down -1.8%.
  • Last week’s release of minutes from the previous Federal Reserve meeting showed potential acceleration of interest rate increases, reducing their balance sheet, and concerns over inflation. In response, markets began to price in a faster pace of interest rate increases as bond yields rose. In response, the bond market (measure by the U.S. Aggregate Bond Index) was down -1.5% for the week.
  • For perspective, the 10-year Treasury bond was yielding about 1.5% to end 2021. After the first week, that same bond was now yielding over 1.7%.
  • Given those rising bond yields, it was no surprise that markets began to reprice themselves. With higher potential interest rates, longer-duration sectors underperformed in markets. For example, technology and healthcare were both down over 4% last week while financials (which benefit from higher rates) were up over 5%.
  • In the December monthly jobs report, it was reported that unemployment dropped down to 3.9%. Previously, the November report showed a 4.2% unemployment rate.
  • In the coming week, most attention will be focused on the December Consumer Price Index report. The report from the U.S. Bureau of Labor Statistics, which will be released on Wednesday, will give more perspective on the areas where price increases are seeing the most inflationary pressure.
  • I’d like to leave you with the final line we’ve used since we started these commentaries back at the very height of market volatility in March 2020. Always remember that we create financial/investment plans not for the easy times, but to prepare for the tough ones.

Author

Mike heads the internal Investment Committee that is responsible for the investment direction of the firm. He works closely with Diversified’s financial planners to support the investment side of the lifelong financial planning process. Lastly, it’s Mike’s responsibility to oversee the ever-changing global investment landscape and work with the planners to evaluate the impact on each of our client’s strategies.

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