The Consumer Price Index, a measure of inflation, rose 0.9% in June 2021 to a 5.4% annualized rate. That’s the fastest 12-month increase since 1991 when excluding food and energy. Used cars and trucks, new vehicles, airfares, and apparel saw the most significant price increases while rising housing prices have experts concerned inflation won’t be temporary.
Despite the rising inflation, bond yields remain near record lows. Currently, 10-year Treasury bonds yield 1.25%, off their 2020 lows of around 0.5%, but far from their 4.34% long-term average or ~3% levels in 2018. Expectations for near-zero interest rates through 2023 and ongoing government stimulus have fueled the record low rates.
Many experts warn that the recovering economy, rising inflation, and record low rates could signal pain for fixed-income investors. For example, Warren Buffett warned fixed-income investors in March that they could face a bleak future over the coming years. But, of course, timing is everything in the market, and predicting a recovery is a challenge.