The Yield Curve Will Fully Invert When China's Covid Lockdowns Pressure Supply Chains
- China’s virus-fighting measures may add to supply-chain woes
- That might in turn force the Fed’s hand toward jumbo hikes
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A massive knock to the Caixin China Services Purchasing Managers Index in March shows that the latest virus outbreak is taking a toll on growth. But it’s the Federal Reserve’s incipient rate hike campaign that will have the most impact on supply-chain problems and inflation, and thus on global markets.
If China continues its Covid-zero approach, expect global supply chains to remain stretched, U.S. inflation to remain elevated and for the Fed to be forced belatedly into jumbo rate hikes. That would put tremendous flattening pressure on the Treasury curve out to three years.