SPIKING INFLATION NOT YET REFLECTED IN INTEREST RATES
The average price for regular gas jumped +8% to $4.44 in May (+48.9% y/y). Although it’s summer, heating oil was up +79.5% y/y in May with spiking diesel prices threatening shipping costs and further aggravating inflation.
The 10-year treasury reached 3.12% on 5/9 (highest level since 11/18) before settling down to just under 3% currently. Interest rates will likely continue to face upward pressure as the Fed begins its quantitative tightening in June (allowing up to $30B in Treasuries & $17.5B in mortgage bonds to mature every month without investing the proceeds, with the planned pace increasing 2x in September).
Given current inflation rates, interest rates should be much higher. For now, investors must deal with negative interest rates.