Major benchmarks closed in the red on Wednesday with the S&P 500 snapping its six day stretch of gains. Such losses came about even as the yield for the benchmark 10-year U.S. Treasury Note moved higher. A section of market watchers attributed these losses to profit taking, but others believe that they were a fallout of investor wariness over an upcoming increase in inflation.

Differing opinions exist about the prospects of U.S. inflation during the current year. But a large swathe of market watchers is switching around to the view that an increase in inflation is indeed forthcoming. In such a situation, investing in gold and oil stocks would prove to be a most profitable option.  

U.S. Treasury Yields Hit 10-Month High

On Wednesday, the yield on the 10-year U.S. Treasury Note exceeded 2.590% for a short period. Ultimately, the figure settled at 2.551%, the highest level recorded since March and a significant increase over Tuesday’s close of 2.542%.

A section of analysts attributed the increase in bond yields to reports that Chinese authorities were considering decelerating or altogether stopping the purchase of U.S. Treasury securities. Similar sentiments were expressed on Tuesday when the Bank of Japan announced that it was preparing to curtail bond purchases, leading to a spike in U.S. Treasury yields.

However, other experts indicated that the yield spike was likely a reaction to fears about an upcoming increase in inflation. This could lead to a series of rate hikes from central banks which could end up halting the equity market rally.
Inflationary Pressures Boost Demand for TIPS
A variety of factors are building up inflationary pressures at the moment. And these pressures are being reflected in the rise in demand for Treasury Inflation Protected Securities (TIPS). During the week ended Jan 3, TIPS experienced an inflow of $465.5 million, taking their total assets to an all-time high of $67.4 billion, per data from Lipper.

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