Citadel Securities says the Federal Reserve's approach to monetary policy keeps long-term Treasury yields elevated, warning the trend poses a broader market risk. The firm's head of EMEA fixed-income sales flagged persistent core-goods inflation as a reason the Fed's next meeting is a close call.
Citadel Securities says the Federal Reserve's handling of monetary policy after a stretch of elevated inflation keeps pushing long-term bond yields to multiyear highs, and that trend is creating broader market risks, the firm said.
Yields sit near two-decade highs
Long-dated Treasury yields stand at their highest levels in nearly two decades, despite policy rates sitting 175 basis points below their peak, Nohshad Shah, Citadel's head of EMEA fixed-income sales, wrote in a client note. According to Investing.com, Shah wrote that "policymakers, both the Fed and fiscal authorities, tend to take the easier route", adding that the pattern will remain a risk for markets more broadly so long as it persists.
US 30-year bond yields reached a 19-year high on Monday, rising above 5.28%. The move came as the bond market reduced expectations for a Fed interest-rate cut in September, following data last week that showed both inflation and consumer demand were easing.
A close call for the Fed
Shah warned against reading the recent improvement in inflation and a soft jobs market as a signal that rates are ready to decline. He noted that more than 55% of core goods prices were rising, making the Fed's policy meeting next month an extremely close call.
AI investment case shifts toward infrastructure
On artificial intelligence, Shah said the investment case is shifting toward cloud infrastructure and away from developing more advanced models. He said hyperscalers such as Microsoft and Google will be better positioned to monetize AI through computing capacity, inference and distribution, potentially offering more visible returns than frontier AI developers such as OpenAI and Anthropic.
Source: Investing.com
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