The bad vibes aren't yielding yet

The only thing more exciting than watching the winter Olympics? Tracking fixed income yield curves.

Though at first it may not seem like a big deal (or remotely interesting), something strange is happening in the bond market right now: The 10-year Treasury yield just fell below 4% for the first time since November.

Searching for a safe haven

Demand for Treasuries has been surging since the start of the year as investors flee to safety amid a turbulent geopolitical environment and fears that AI is going to hit the economy like a wrecking ball (keep in mind, bond prices and yields move inversely).

But the immediate impetus for today’s bond rally was the latest Producer Price Index reading, which showed January core prices accelerated 0.8% in the month, far above the 0.3% economists were predicting. That stoked fears of the dreaded S-word: stagflation, in which high inflation and an economic slowdown hit the economy at the same time.

“Regardless of whether we see better-than-expected earnings, more tame inflation or a resilient labor market, people have been selling first and asking questions later,” explained Chief Investment Officer for Northlight Asset Management Chris Zaccarelli in a note. “This morning’s higher inflation data is one more thing to worry about within the ‘traditional’ economic analysis of price stability and full employment, even before investors factor in the disruptive potential of AI’s impact on the economy.”

The silver lining: Sure, stagflation, a stalling economy, and spooked investors doesn’t exactly create great vibes. But the fact that investors are buying long-term US government debt in times of uncertainty means that they still have faith in the US, which is reassuring to those who feared the decline of the greenback could force investors to look outside the US for safe haven assets.

What does this mean for you?

The 10-year Treasury yield isn’t just an important number to bond investors, it’s also a benchmark for borrowing costs across the economy, influencing mortgage rates, corporate loan rates, and by extension, stock prices. Just look at mortgage rates, which fell below 6% for the first time since 2022 alongside the drop in Treasury yields.

The bottom line: It makes sense that markets are easily spooked right now, but that doesn’t mean you have to freak out, too. “For investors, this is a volatility moment, not a turning point,” explained President of Bolvin Wealth Management Group Gina Bolvin in a note today. “Focus on pricing power, earnings strength, and selective opportunities as the Fed stays patient.”—LB