: Bridgewater chief investment officers say the market has entered the second stage of tightening

by | Oct 18, 2023 | Stock Market

The upward adjustment in bond yields was warranted and isn’t done yet, say the co-chief investment officers of hedge fund giant Bridgewater Associates. Bob Prince, Greg Jensen and Karen Karniol-Tambour, in an article posted to the firm’s website, say the market is at an unusual stage where changes in economic conditions aren’t the biggest drivers of changes in yields and asset prices. “At this stage of the tightening cycle, what matters most will be whether the desired levels of conditions have been met; so far, they have not,” they say.

They said the market has re-priced higher-for-longer rates given inflation is still moderately too high, wage growth too high to allow inflation to settle into a target range, labor market conditions too strong to exert a downward pressure on wages and real growth not so weak as to justify an easing. After an unusually strong retail sales report, the Atlanta Fed’s GDPNow estimate of growth for the third quarter was 5.4%. Consumer prices in September rose 3.7% year-over-year, the unemployment rate was 3.8%, and the employment cost index in the second quarter grew 4.5% year-on-year. “Looking ahead, if the T-bill rate stays at 5% or higher, to get a r …

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