Inflation Remains Tepid, Credit Risk (and Others) Climb, and When Will Bankruptcies Hit Their Peak?

By Beaumont Capital Management

U.S. CPI grew 0.2% in September—its slowest pace in four months—to 1.4%, directly in line with expectations but again short of the Fed’s 2% target. Still, it’s a rosier picture here than in Europe, where core inflation looks to be cruising downward toward zero. And we’ll say it again: the bond market is under threat. As corporate debt soars, credit risk is climbing, and net issuance is poised to approach record highs. What’s more, bankruptcy filings don’t typically peak until 5-6 quarters after a recession, so these struggles aren’t likely to disappear as quickly as we might hope. Do you have a plan to meet return goals if yields continue to disappoint?

1. Inflation was, as expected, still rather subdued and under the Fed’s 2% target. The core CPI held steady at 1.7%…

Source: The Daily Shot, from 10/14/20

2. Inflation in Europe is approaching zero…

Source: The Daily Shot, from 10/14/20

3. In addition to the risk of near-zero interest rates, the credit risk in the IG space has also been rising. It’s a good time to check your bond funds for subtle changes in risk…

erosion of credit
Source: BofA Merrill Lynch, from 10/13/20

4. Did your bond manager keep the fallen angels? Next year insolvencies in the U.S. are predicted to rise 57%!

Source: The Daily Shot, from 10/13/20

5. …And the icing on the cake: massive new government and corporate bond supplies

corporate bonds
Source: US Treasury, Federal Reserve, TS Lombard, from 10/13/20

6. “After you,” “No, No, after you”…Once the election is over, will Americans be more willing to get the vaccine?

Source: The Daily Shot, from 10/13/20

7. How does Europe socially distance? How many bison are in Poland or red lions in Luxembourg?

social distance
Source: The Daily Shot, from 10/14/20

Originally published by Beaumont Capital Management, 10/14/20

Disclosure: The charts and info-graphics contained in this blog are typically based on data obtained from 3rd parties and are believed to be accurate. The commentary included is the opinion of the author and subject to change at any time. Any reference to specific securities or investments are for illustrative purposes only and are not intended as investment advice nor are they a recommendation to take any action. Individual securities mentioned may be held in client accounts. Past performance is no guarantee of future results.