A lackluster November jobs report sent both equities and bond yields higher. Why? With the economy losing steam due to a surge in Covid-19 cases, the markets are betting on more stimulus. Of particular concern is the Labor Force Participation Rate (LFPR), which dropped precipitously as people stopped looking for work. Therefore, the unemployment rate which clocked in at 6.7% is a bit misleading as more people give up looking for work. There is a growing concern for small business owners, especially those in retail, beauty, hotel, and hospitality in some areas which have been forced to shut their doors as Covid cases spike. The hope remains that Congress can work together to provide a lifeline to those hard-working business owners until vaccinations can be delivered.
With still so much that can go wrong, why is the 10-year Treasury bond yields near 1% inflation? Unprecedented monetary and fiscal stimuli are starting to make some of our brightest financial experts worry about inflation. There are some signs that inflation is on the way. Wage inflation is moving higher. Groceries are more expensive. Housing prices have risen. These are all inflationary indicators. Whether or not inflation really breaks out is anyone’s guess. However, with interest rates still at historical lows, we are encouraging our clients to take advantage of the current rate environment as the odds of lower interest rates seems unlikely. Even if there is a major setback, there are no guarantee interest rates will move lower on bad economic or pandemic-related news. Central banks all over the world have printed money at unprecedented levels and by doing so have created tremendous levels of national debt. A small change in sentiment about the U.S. debt levels would lead to a move higher in interest rates quickly. Therefore, there is no time like the present to take advantage of lowering debt repayments by refinancing or locking in an ultra-low rate on a new home purchase.