Morning Notes — Bond Yields and Sector Outlook

We expect nominal bond yields to continue moving higher from here as long-end yields currently imply near zero GDP growth in 2022. We expect real yields will stay depressed (10-year real yields now -1.15) as inflation expectations and inflation breakeven yields remain elevated for the next few months. The 5/30-year yield spread is currently 75bps.  We paused our preference to add cyclical/value equity exposure as the spread moved under 75bps.  We’ll need to see more strength in the days ahead, but the near term set up seems to argue in favor of cyclically exposed names.  Tech should continue to perform in line with value sectors as long as 10-year real yields remain under -0.98 and unlikely to see material multiple compression until they move north of -0.88.