<\/p>\n
Unlock the Editor\u2019s Digest for free<\/p>\n
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.<\/span><\/p>\n<\/iframe><\/div>\n<div id=\"article-body\">\n<p>Good morning. Donald Trump announced a trade deal with Indonesia yesterday. Indonesia will be hit with a 19 per cent tariff on exports to the US \u2014 the initial threat was 32 per cent \u2014 and in return it will buy American oil, aeroplanes and farm goods. This is the closest thing to a real agreement since the deal with Vietnam. But neither Vietnam nor Indonesia have confirmed Trump\u2019s claims. Should we buy them? Email us: unhedged@ft.com.\u00a0<\/p>\n<h2 class=\"n-content-heading-2 o3-editorial-typography-chapter\">Inflation<\/h2>\n<p>Both headline and core inflation picked up in June. The core figure, the one we care about, rose from 2.8 per cent to 2.9 per cent. But the modest increase was about as expected.<\/p>\n<p>Looking closely, though, the report provided solid evidence that tariffs are pushing prices up. Core goods prices rose 0.2 per cent, driven by household appliances, clothing and furnishings \u2014 the very categories that analysts have long predicted would show tariff inflation first. \u201cPrices rose especially sharply for goods which are primarily imported, and less quickly for those that are mainly made in the US,\u201d said Samuel Tombs at Pantheon Macroeconomics. This chart from Tombs shows price changes relative to import intensity, a measure of how much each class of good is imported from abroad:<\/p>\n<figure class=\"n-content-image n-content-image--full\" data-component=\"image-set\"><picture><source media=\"(min-width: 700px)\" srcset=\"https:\/\/www.ft.com\/__origami\/service\/image\/v2\/images\/raw\/ftcms%3A51609113-7c33-447f-9763-eb641664fb86?source=next-article&fit=scale-down&quality=highest&width=700&dpr=1 1x\" width=\"751\" height=\"460\"\/><img decoding=\"async\" src=\"https:\/\/www.ft.com\/__origami\/service\/image\/v2\/images\/raw\/https%3A%2F%2Fd1e00ek4ebabms.cloudfront.net%2Fproduction%2F51609113-7c33-447f-9763-eb641664fb86.png?source=next-article&fit=scale-down&quality=highest&width=700&dpr=1\" alt=\"CPI core goods components, m\/m% change in June, and % import intensity\" data-image-type=\"image\" width=\"751\" height=\"460\" loading=\"lazy\"\/><\/picture><figcaption class=\"n-content-picture__caption o3-editorial-typography-caption\"><span\/><span>\u00a9 Pantheon Macroeconomics<\/span><\/figcaption><\/figure>\n<p>Unhedged\u2019s preferred metric, annualised month-over-month change in core CPI, continues to show the disinflationary trend weakening:<\/p>\n<figure class=\"n-content-image n-content-image--full\" data-component=\"image-set\"><picture><source media=\"(min-width: 700px)\" srcset=\"https:\/\/www.ft.com\/__origami\/service\/image\/v2\/images\/raw\/ftcms%3A7e7cfc13-cdab-47e7-b2cf-ec68e86ba181?source=next-article&fit=scale-down&quality=highest&width=700&dpr=1 1x,https:\/\/www.ft.com\/__origami\/service\/image\/v2\/images\/raw\/ftcms%3A7e7cfc13-cdab-47e7-b2cf-ec68e86ba181?source=next-article&fit=scale-down&quality=highest&width=700&dpr=2 2x,https:\/\/www.ft.com\/__origami\/service\/image\/v2\/images\/raw\/ftcms%3A7e7cfc13-cdab-47e7-b2cf-ec68e86ba181?source=next-article&fit=scale-down&quality=highest&width=700&dpr=3 3x,https:\/\/www.ft.com\/__origami\/service\/image\/v2\/images\/raw\/ftcms%3A7e7cfc13-cdab-47e7-b2cf-ec68e86ba181?source=next-article&fit=scale-down&quality=highest&width=700&dpr=4 4x,https:\/\/www.ft.com\/__origami\/service\/image\/v2\/images\/raw\/ftcms%3A7e7cfc13-cdab-47e7-b2cf-ec68e86ba181?source=next-article&fit=scale-down&quality=highest&width=700&dpr=5 5x\" width=\"3500\" height=\"2500\"\/><source media=\"(max-width: 490px)\" srcset=\"https:\/\/www.ft.com\/__origami\/service\/image\/v2\/images\/raw\/ftcms%3Ae22352d3-d118-43ed-8e1c-b57385eafc48?source=next-article&fit=scale-down&quality=highest&width=490&dpr=1 1x,https:\/\/www.ft.com\/__origami\/service\/image\/v2\/images\/raw\/ftcms%3Ae22352d3-d118-43ed-8e1c-b57385eafc48?source=next-article&fit=scale-down&quality=highest&width=490&dpr=2 2x,https:\/\/www.ft.com\/__origami\/service\/image\/v2\/images\/raw\/ftcms%3Ae22352d3-d118-43ed-8e1c-b57385eafc48?source=next-article&fit=scale-down&quality=highest&width=490&dpr=3 3x\" width=\"1500\" height=\"2000\"\/><img decoding=\"async\" src=\"https:\/\/www.ft.com\/__origami\/service\/image\/v2\/images\/raw\/https%3A%2F%2Fd6c748xw2pzm8.cloudfront.net%2Fprod%2Fedee18a0-6199-11f0-be7c-59b86b5536b4-standard.png?source=next-article&fit=scale-down&quality=highest&width=700&dpr=1\" alt=\"Line chart of Annualised month-on-month change in core CPI (%) showing Steeper overall\" data-image-type=\"graphic\" width=\"3500\" height=\"2500\" loading=\"lazy\"\/><\/picture><\/figure>\n<p>The market moved on the news \u2014 gently. Both 10-year Treasury yields and 2-year Treasury yields rose 5 basis points. That seems to mostly reflect inflation expectations. One-year inflation swaps started rising last week, after Trump started ratcheting up his tariff threats, and rose again yesterday:<\/p>\n<figure class=\"n-content-image n-content-image--full\" data-component=\"image-set\"><picture><source media=\"(min-width: 700px)\" srcset=\"https:\/\/www.ft.com\/__origami\/service\/image\/v2\/images\/raw\/ftcms%3Afa8b3fba-20db-4418-9549-27b5887ea597?source=next-article&fit=scale-down&quality=highest&width=700&dpr=1 1x,https:\/\/www.ft.com\/__origami\/service\/image\/v2\/images\/raw\/ftcms%3Afa8b3fba-20db-4418-9549-27b5887ea597?source=next-article&fit=scale-down&quality=highest&width=700&dpr=2 2x,https:\/\/www.ft.com\/__origami\/service\/image\/v2\/images\/raw\/ftcms%3Afa8b3fba-20db-4418-9549-27b5887ea597?source=next-article&fit=scale-down&quality=highest&width=700&dpr=3 3x,https:\/\/www.ft.com\/__origami\/service\/image\/v2\/images\/raw\/ftcms%3Afa8b3fba-20db-4418-9549-27b5887ea597?source=next-article&fit=scale-down&quality=highest&width=700&dpr=4 4x,https:\/\/www.ft.com\/__origami\/service\/image\/v2\/images\/raw\/ftcms%3Afa8b3fba-20db-4418-9549-27b5887ea597?source=next-article&fit=scale-down&quality=highest&width=700&dpr=5 5x\" width=\"3500\" height=\"2500\"\/><source media=\"(max-width: 490px)\" srcset=\"https:\/\/www.ft.com\/__origami\/service\/image\/v2\/images\/raw\/ftcms%3A89bb1111-ee14-4f70-896d-c8ec54237c65?source=next-article&fit=scale-down&quality=highest&width=490&dpr=1 1x,https:\/\/www.ft.com\/__origami\/service\/image\/v2\/images\/raw\/ftcms%3A89bb1111-ee14-4f70-896d-c8ec54237c65?source=next-article&fit=scale-down&quality=highest&width=490&dpr=2 2x,https:\/\/www.ft.com\/__origami\/service\/image\/v2\/images\/raw\/ftcms%3A89bb1111-ee14-4f70-896d-c8ec54237c65?source=next-article&fit=scale-down&quality=highest&width=490&dpr=3 3x\" width=\"1500\" height=\"2000\"\/><img decoding=\"async\" src=\"https:\/\/www.ft.com\/__origami\/service\/image\/v2\/images\/raw\/https%3A%2F%2Fd6c748xw2pzm8.cloudfront.net%2Fprod%2F5a8b1530-61b3-11f0-8ec5-db1083ac25c4-standard.png?source=next-article&fit=scale-down&quality=highest&width=700&dpr=1\" alt=\"Line chart of 1-year inflation swaps (%) showing Confirmation?\" data-image-type=\"graphic\" width=\"3500\" height=\"2500\" loading=\"lazy\"\/><\/picture><\/figure>\n<p>Futures-implied Federal Reserve rates did move down yesterday, but only a touch. Investors are still expecting between one and two cuts by the end of this year.<\/p>\n<figure class=\"n-content-image n-content-image--full\" data-component=\"image-set\"><picture><source media=\"(min-width: 700px)\" srcset=\"https:\/\/www.ft.com\/__origami\/service\/image\/v2\/images\/raw\/ftcms%3A58c46dcb-b07d-4de0-8672-471d0e5d60b6?source=next-article&fit=scale-down&quality=highest&width=700&dpr=1 1x,https:\/\/www.ft.com\/__origami\/service\/image\/v2\/images\/raw\/ftcms%3A58c46dcb-b07d-4de0-8672-471d0e5d60b6?source=next-article&fit=scale-down&quality=highest&width=700&dpr=2 2x,https:\/\/www.ft.com\/__origami\/service\/image\/v2\/images\/raw\/ftcms%3A58c46dcb-b07d-4de0-8672-471d0e5d60b6?source=next-article&fit=scale-down&quality=highest&width=700&dpr=3 3x,https:\/\/www.ft.com\/__origami\/service\/image\/v2\/images\/raw\/ftcms%3A58c46dcb-b07d-4de0-8672-471d0e5d60b6?source=next-article&fit=scale-down&quality=highest&width=700&dpr=4 4x,https:\/\/www.ft.com\/__origami\/service\/image\/v2\/images\/raw\/ftcms%3A58c46dcb-b07d-4de0-8672-471d0e5d60b6?source=next-article&fit=scale-down&quality=highest&width=700&dpr=5 5x\" width=\"3500\" height=\"2500\"\/><source media=\"(max-width: 490px)\" srcset=\"https:\/\/www.ft.com\/__origami\/service\/image\/v2\/images\/raw\/ftcms%3Addd1bdf5-4110-4f2c-8f9a-5d14134c2a71?source=next-article&fit=scale-down&quality=highest&width=490&dpr=1 1x,https:\/\/www.ft.com\/__origami\/service\/image\/v2\/images\/raw\/ftcms%3Addd1bdf5-4110-4f2c-8f9a-5d14134c2a71?source=next-article&fit=scale-down&quality=highest&width=490&dpr=2 2x,https:\/\/www.ft.com\/__origami\/service\/image\/v2\/images\/raw\/ftcms%3Addd1bdf5-4110-4f2c-8f9a-5d14134c2a71?source=next-article&fit=scale-down&quality=highest&width=490&dpr=3 3x\" width=\"1500\" height=\"2000\"\/><img decoding=\"async\" src=\"https:\/\/www.ft.com\/__origami\/service\/image\/v2\/images\/raw\/https%3A%2F%2Fd6c748xw2pzm8.cloudfront.net%2Fprod%2Fff8f4de0-61b2-11f0-856f-b51cb8e7b2ac-standard.png?source=next-article&fit=scale-down&quality=highest&width=700&dpr=1\" alt=\"Line chart of Futures implied reduction in the federal funds rate in December 2025 (basis points) showing A cut or two\" data-image-type=\"graphic\" width=\"3500\" height=\"2500\" loading=\"lazy\"\/><\/picture><\/figure>\n<p>There was good news in the inflation report, too. Shelter prices, a long-standing problem for the Fed, have fallen sharply over the past two months. And vehicle prices fell in June, despite the 25 per cent tariff on cars. According to Tombs, had it not been for auto prices, core goods prices would have risen 0.5 per cent between May and June, the highest monthly change since June 2022, in the throes of post-pandemic inflation.<\/p>\n<p>Most analysts argue this is just the beginning of tariff-induced inflation. Companies have been running down existing inventory and absorbing tariff costs as they wait for clarity on Trump\u2019s \u201cdeals\u201d; that can\u2019t go on forever. Timely data shows that some car manufacturers, for example, are starting to raise prices, said Bradley Saunders at Capital Economics. Tom Porcelli of PGIM estimates that headline inflation could get as high as 3 per cent to 3.5 per cent in the next year as tariffs solidify.<\/p>\n<p>Porcelli and many others argue that tariff inflation will be largely transitory. But until the Fed knows the level at which the president\u2019s tariffs will settle, it won\u2019t be able to shrug them off. If the labour market sours before we get that clarity, the Fed will have tough choices to make.\u00a0<\/p>\n<p>(<em>Reiter<\/em>)<\/p>\n<h2 class=\"n-content-heading-2 o3-editorial-typography-chapter\">Treasury investors\u2019 blues<\/h2>\n<p>We are living in one of the worst periods in history for Treasury investors. Nominal returns on the benchmark 10-year Treasury are at an all-time low on a trailing 10-year basis. In real terms, things aren\u2019t quite as bad as they were in the 1970s or after the world wars, but they sure ain\u2019t pretty. Charts from Deutsche Bank:<\/p>\n<figure class=\"n-content-image n-content-image--inline\" style=\"width:350px;max-width:100%\" data-component=\"image-set\"><picture><source media=\"(min-width: 700px)\" srcset=\"https:\/\/www.ft.com\/__origami\/service\/image\/v2\/images\/raw\/ftcms%3Ae278de59-79bc-49da-ad1e-bc4f4910feb9?source=next-article&fit=scale-down&quality=highest&width=350&dpr=1 1x\" width=\"460\" height=\"520\"\/><img decoding=\"async\" src=\"https:\/\/www.ft.com\/__origami\/service\/image\/v2\/images\/raw\/https%3A%2F%2Fd1e00ek4ebabms.cloudfront.net%2Fproduction%2Fe278de59-79bc-49da-ad1e-bc4f4910feb9.png?source=next-article&fit=scale-down&quality=highest&width=700&dpr=1\" alt=\"Charts from Deutsche Bank \" data-image-type=\"image\" width=\"460\" height=\"520\" loading=\"lazy\"\/><\/picture><\/figure>\n<p>There are various ways to measure Treasury returns, but similar trends show up regardless of method. Aswath Damodaran at NYU Stern calculates the return on the 10-year bond over 1-year holding periods by taking the coupon rate at the end of the previous year and subtracting the price change of a bond with that coupon rate. Returns vary a lot by year, but the same lousy trend is visible. <\/p>\n<div class=\"n-content-layout\" data-component=\"flourish\" data-component-id=\"24252652\" data-component-type=\"flourish-in-article\">\n<figure class=\"n-content-picture n-content-layout__container\"><picture data-asset-type=\"flourish\" data-flourish-id=\"24252652\" data-flourish-type=\"visualisation\">\n<div id=\"24252652\" class=\"cp-message o-message o-message--inform o-message--notice\" data-o-component=\"o-message\">\n<div class=\"o-message__container\">\n<div class=\"o-message__content\">\n<p class=\"o-message__content-main\">Some content could not load. Check your internet connection or browser settings.<\/p>\n<\/div>\n<\/div>\n<\/div>\n<p><img decoding=\"async\" src=\"https:\/\/www.ft.com\/__origami\/service\/image\/v2\/images\/raw\/https%3A%2F%2Fpublic.flourish.studio%2Fvisualisation%2F24252652%2Fthumbnail%3FcacheBuster%3D973691?source=cp-content-pipeline&fit=scale-down&quality=highest&width=2626&dpr=1\" alt=\"\"\/><\/picture><\/figure>\n<\/div>\n<p>The reasons are well understood. Post-Covid inflation led to Fed rate increases that crushed bond prices even as inflation reduced real returns, culminating in the nightmarish year 2022, when bonds were crushed alongside equities. But what matters is what investors should expect in the next 10 years. Here\u2019s Scott DiMaggio of AllianceBernstein:\u00a0<\/p>\n<blockquote class=\"n-content-blockquote o3-editorial-typography-blockquote\">\n<p>If you look at the next 10 years \u2014 and 10 years is really hard to gauge \u2014 we think the neutral rate for the Fed is around 3 per cent. So the 10-year is probably somewhere in the 3.75 per cent range. So if you think of that as a pretty good predictor of where returns will be, you\u2019re probably looking somewhere in the area of a 4 per cent, 4.25 per cent [nominal] return.\u00a0<\/p>\n<\/blockquote>\n<p>Accounting for inflation expectations, DiMaggio estimates returns in the 2 per cent range. That\u2019s not nothing, but it is a huge shift from what investors have come to expect during the long bond bull market that ended in 2022. Between 1980 and 2010, according to the Credit Suisse Investment Returns Yearbook (RIP!), annual real returns on Treasuries bonds were 6 per cent a year annualised.\u00a0\u00a0<\/p>\n<p>Whether returns will be much better or worse than DiMaggio\u2019s 2 per cent central forecast depends mainly on inflation, of course. That uncertainty is built into yields in the form of a risk premium, as Christopher Brigati of SWBC explains<\/p>\n<blockquote class=\"n-content-blockquote o3-editorial-typography-blockquote\">\n<p>We\u2019ve had a remarkable amount of uncertainty as of late \u2014 we don\u2019t know what the next move is going to be, when the next tariff is going to drop. That adds a layer of uncertainty and unease to the market. As a result, we\u2019re seeing a little bit more of a term premium coming into the market. People require, and expect, better performance and better returns.<\/p>\n<\/blockquote>\n<p>Here, in light blue, are KPMG\u2019s estimates of the inflation risk premium:<\/p>\n<figure class=\"n-content-image n-content-image--full\" data-component=\"image-set\"><picture><source media=\"(min-width: 700px)\" srcset=\"https:\/\/www.ft.com\/__origami\/service\/image\/v2\/images\/raw\/ftcms%3Ace814cde-7620-44e4-a7f9-fe86913d8b3f?source=next-article&fit=scale-down&quality=highest&width=700&dpr=1 1x\" width=\"748\" height=\"383\"\/><img decoding=\"async\" src=\"https:\/\/www.ft.com\/__origami\/service\/image\/v2\/images\/raw\/https%3A%2F%2Fd1e00ek4ebabms.cloudfront.net%2Fproduction%2Fce814cde-7620-44e4-a7f9-fe86913d8b3f.png?source=next-article&fit=scale-down&quality=highest&width=700&dpr=1\" alt=\"Chart showing KPMG\u2019s estimates of the inflation risk premium\" data-image-type=\"image\" width=\"748\" height=\"383\" loading=\"lazy\"\/><\/picture><figcaption class=\"n-content-picture__caption o3-editorial-typography-caption\"><span>Interest rate decomposition<\/span><span> <!-- -->\u00a9 KPMG Economics<\/span><\/figcaption><\/figure>\n<p>If the inflation picture becomes clearer, and tariff inflation doesn\u2019t materialise, Treasury investors will harvest that premium. For the longer term, however, it would be dangerous to plan on real returns of more than a per cent or two from your portfolio\u2019s Treasury allocation. The golden age is over.<\/p>\n<p><em>(Kim)<\/em><\/p>\n<h2 class=\"n-content-heading-2 o3-editorial-typography-chapter\">One good read<\/h2>\n<p>EV wars.<\/p>\n<\/div>\n<p>#Tariff #inflation #arrives<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Unlock the Editor\u2019s Digest for free Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter. Good morning. Donald Trump announced a trade deal with Indonesia yesterday. Indonesia will be hit with a 19 per cent tariff on exports to the US \u2014 the initial threat was 32 per cent \u2014 […]<\/p>\n","protected":false},"author":1,"featured_media":280,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[4],"tags":[457,397,121],"class_list":{"0":"post-279","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-business","8":"tag-arrives","9":"tag-inflation","10":"tag-tariff"},"_links":{"self":[{"href":"https:\/\/www.worldpumpnews.com\/index.php?rest_route=\/wp\/v2\/posts\/279","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.worldpumpnews.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.worldpumpnews.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.worldpumpnews.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.worldpumpnews.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=279"}],"version-history":[{"count":0,"href":"https:\/\/www.worldpumpnews.com\/index.php?rest_route=\/wp\/v2\/posts\/279\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.worldpumpnews.com\/index.php?rest_route=\/wp\/v2\/media\/280"}],"wp:attachment":[{"href":"https:\/\/www.worldpumpnews.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=279"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.worldpumpnews.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=279"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.worldpumpnews.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=279"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}
<\/iframe><\/div>\n<div id=\"article-body\">\n<p>Good morning. Donald Trump announced a trade deal with Indonesia yesterday. Indonesia will be hit with a 19 per cent tariff on exports to the US \u2014 the initial threat was 32 per cent \u2014 and in return it will buy American oil, aeroplanes and farm goods. This is the closest thing to a real agreement since the deal with Vietnam. But neither Vietnam nor Indonesia have confirmed Trump\u2019s claims. Should we buy them? Email us: unhedged@ft.com.\u00a0<\/p>\n<h2 class=\"n-content-heading-2 o3-editorial-typography-chapter\">Inflation<\/h2>\n<p>Both headline and core inflation picked up in June. The core figure, the one we care about, rose from 2.8 per cent to 2.9 per cent. But the modest increase was about as expected.<\/p>\n<p>Looking closely, though, the report provided solid evidence that tariffs are pushing prices up. Core goods prices rose 0.2 per cent, driven by household appliances, clothing and furnishings \u2014 the very categories that analysts have long predicted would show tariff inflation first. \u201cPrices rose especially sharply for goods which are primarily imported, and less quickly for those that are mainly made in the US,\u201d said Samuel Tombs at Pantheon Macroeconomics. This chart from Tombs shows price changes relative to import intensity, a measure of how much each class of good is imported from abroad:<\/p>\n<figure class=\"n-content-image n-content-image--full\" data-component=\"image-set\"><picture><source media=\"(min-width: 700px)\" srcset=\"https:\/\/www.ft.com\/__origami\/service\/image\/v2\/images\/raw\/ftcms%3A51609113-7c33-447f-9763-eb641664fb86?source=next-article&fit=scale-down&quality=highest&width=700&dpr=1 1x\" width=\"751\" height=\"460\"\/><img decoding=\"async\" src=\"https:\/\/www.ft.com\/__origami\/service\/image\/v2\/images\/raw\/https%3A%2F%2Fd1e00ek4ebabms.cloudfront.net%2Fproduction%2F51609113-7c33-447f-9763-eb641664fb86.png?source=next-article&fit=scale-down&quality=highest&width=700&dpr=1\" alt=\"CPI core goods components, m\/m% change in June, and % import intensity\" data-image-type=\"image\" width=\"751\" height=\"460\" loading=\"lazy\"\/><\/picture><figcaption class=\"n-content-picture__caption o3-editorial-typography-caption\"><span\/><span>\u00a9 Pantheon Macroeconomics<\/span><\/figcaption><\/figure>\n<p>Unhedged\u2019s preferred metric, annualised month-over-month change in core CPI, continues to show the disinflationary trend weakening:<\/p>\n<figure class=\"n-content-image n-content-image--full\" data-component=\"image-set\"><picture><source media=\"(min-width: 700px)\" srcset=\"https:\/\/www.ft.com\/__origami\/service\/image\/v2\/images\/raw\/ftcms%3A7e7cfc13-cdab-47e7-b2cf-ec68e86ba181?source=next-article&fit=scale-down&quality=highest&width=700&dpr=1 1x,https:\/\/www.ft.com\/__origami\/service\/image\/v2\/images\/raw\/ftcms%3A7e7cfc13-cdab-47e7-b2cf-ec68e86ba181?source=next-article&fit=scale-down&quality=highest&width=700&dpr=2 2x,https:\/\/www.ft.com\/__origami\/service\/image\/v2\/images\/raw\/ftcms%3A7e7cfc13-cdab-47e7-b2cf-ec68e86ba181?source=next-article&fit=scale-down&quality=highest&width=700&dpr=3 3x,https:\/\/www.ft.com\/__origami\/service\/image\/v2\/images\/raw\/ftcms%3A7e7cfc13-cdab-47e7-b2cf-ec68e86ba181?source=next-article&fit=scale-down&quality=highest&width=700&dpr=4 4x,https:\/\/www.ft.com\/__origami\/service\/image\/v2\/images\/raw\/ftcms%3A7e7cfc13-cdab-47e7-b2cf-ec68e86ba181?source=next-article&fit=scale-down&quality=highest&width=700&dpr=5 5x\" width=\"3500\" height=\"2500\"\/><source media=\"(max-width: 490px)\" srcset=\"https:\/\/www.ft.com\/__origami\/service\/image\/v2\/images\/raw\/ftcms%3Ae22352d3-d118-43ed-8e1c-b57385eafc48?source=next-article&fit=scale-down&quality=highest&width=490&dpr=1 1x,https:\/\/www.ft.com\/__origami\/service\/image\/v2\/images\/raw\/ftcms%3Ae22352d3-d118-43ed-8e1c-b57385eafc48?source=next-article&fit=scale-down&quality=highest&width=490&dpr=2 2x,https:\/\/www.ft.com\/__origami\/service\/image\/v2\/images\/raw\/ftcms%3Ae22352d3-d118-43ed-8e1c-b57385eafc48?source=next-article&fit=scale-down&quality=highest&width=490&dpr=3 3x\" width=\"1500\" height=\"2000\"\/><img decoding=\"async\" src=\"https:\/\/www.ft.com\/__origami\/service\/image\/v2\/images\/raw\/https%3A%2F%2Fd6c748xw2pzm8.cloudfront.net%2Fprod%2Fedee18a0-6199-11f0-be7c-59b86b5536b4-standard.png?source=next-article&fit=scale-down&quality=highest&width=700&dpr=1\" alt=\"Line chart of Annualised month-on-month change in core CPI (%) showing Steeper overall\" data-image-type=\"graphic\" width=\"3500\" height=\"2500\" loading=\"lazy\"\/><\/picture><\/figure>\n<p>The market moved on the news \u2014 gently. Both 10-year Treasury yields and 2-year Treasury yields rose 5 basis points. That seems to mostly reflect inflation expectations. One-year inflation swaps started rising last week, after Trump started ratcheting up his tariff threats, and rose again yesterday:<\/p>\n<figure class=\"n-content-image n-content-image--full\" data-component=\"image-set\"><picture><source media=\"(min-width: 700px)\" srcset=\"https:\/\/www.ft.com\/__origami\/service\/image\/v2\/images\/raw\/ftcms%3Afa8b3fba-20db-4418-9549-27b5887ea597?source=next-article&fit=scale-down&quality=highest&width=700&dpr=1 1x,https:\/\/www.ft.com\/__origami\/service\/image\/v2\/images\/raw\/ftcms%3Afa8b3fba-20db-4418-9549-27b5887ea597?source=next-article&fit=scale-down&quality=highest&width=700&dpr=2 2x,https:\/\/www.ft.com\/__origami\/service\/image\/v2\/images\/raw\/ftcms%3Afa8b3fba-20db-4418-9549-27b5887ea597?source=next-article&fit=scale-down&quality=highest&width=700&dpr=3 3x,https:\/\/www.ft.com\/__origami\/service\/image\/v2\/images\/raw\/ftcms%3Afa8b3fba-20db-4418-9549-27b5887ea597?source=next-article&fit=scale-down&quality=highest&width=700&dpr=4 4x,https:\/\/www.ft.com\/__origami\/service\/image\/v2\/images\/raw\/ftcms%3Afa8b3fba-20db-4418-9549-27b5887ea597?source=next-article&fit=scale-down&quality=highest&width=700&dpr=5 5x\" width=\"3500\" height=\"2500\"\/><source media=\"(max-width: 490px)\" srcset=\"https:\/\/www.ft.com\/__origami\/service\/image\/v2\/images\/raw\/ftcms%3A89bb1111-ee14-4f70-896d-c8ec54237c65?source=next-article&fit=scale-down&quality=highest&width=490&dpr=1 1x,https:\/\/www.ft.com\/__origami\/service\/image\/v2\/images\/raw\/ftcms%3A89bb1111-ee14-4f70-896d-c8ec54237c65?source=next-article&fit=scale-down&quality=highest&width=490&dpr=2 2x,https:\/\/www.ft.com\/__origami\/service\/image\/v2\/images\/raw\/ftcms%3A89bb1111-ee14-4f70-896d-c8ec54237c65?source=next-article&fit=scale-down&quality=highest&width=490&dpr=3 3x\" width=\"1500\" height=\"2000\"\/><img decoding=\"async\" src=\"https:\/\/www.ft.com\/__origami\/service\/image\/v2\/images\/raw\/https%3A%2F%2Fd6c748xw2pzm8.cloudfront.net%2Fprod%2F5a8b1530-61b3-11f0-8ec5-db1083ac25c4-standard.png?source=next-article&fit=scale-down&quality=highest&width=700&dpr=1\" alt=\"Line chart of 1-year inflation swaps (%) showing Confirmation?\" data-image-type=\"graphic\" width=\"3500\" height=\"2500\" loading=\"lazy\"\/><\/picture><\/figure>\n<p>Futures-implied Federal Reserve rates did move down yesterday, but only a touch. Investors are still expecting between one and two cuts by the end of this year.<\/p>\n<figure class=\"n-content-image n-content-image--full\" data-component=\"image-set\"><picture><source media=\"(min-width: 700px)\" srcset=\"https:\/\/www.ft.com\/__origami\/service\/image\/v2\/images\/raw\/ftcms%3A58c46dcb-b07d-4de0-8672-471d0e5d60b6?source=next-article&fit=scale-down&quality=highest&width=700&dpr=1 1x,https:\/\/www.ft.com\/__origami\/service\/image\/v2\/images\/raw\/ftcms%3A58c46dcb-b07d-4de0-8672-471d0e5d60b6?source=next-article&fit=scale-down&quality=highest&width=700&dpr=2 2x,https:\/\/www.ft.com\/__origami\/service\/image\/v2\/images\/raw\/ftcms%3A58c46dcb-b07d-4de0-8672-471d0e5d60b6?source=next-article&fit=scale-down&quality=highest&width=700&dpr=3 3x,https:\/\/www.ft.com\/__origami\/service\/image\/v2\/images\/raw\/ftcms%3A58c46dcb-b07d-4de0-8672-471d0e5d60b6?source=next-article&fit=scale-down&quality=highest&width=700&dpr=4 4x,https:\/\/www.ft.com\/__origami\/service\/image\/v2\/images\/raw\/ftcms%3A58c46dcb-b07d-4de0-8672-471d0e5d60b6?source=next-article&fit=scale-down&quality=highest&width=700&dpr=5 5x\" width=\"3500\" height=\"2500\"\/><source media=\"(max-width: 490px)\" srcset=\"https:\/\/www.ft.com\/__origami\/service\/image\/v2\/images\/raw\/ftcms%3Addd1bdf5-4110-4f2c-8f9a-5d14134c2a71?source=next-article&fit=scale-down&quality=highest&width=490&dpr=1 1x,https:\/\/www.ft.com\/__origami\/service\/image\/v2\/images\/raw\/ftcms%3Addd1bdf5-4110-4f2c-8f9a-5d14134c2a71?source=next-article&fit=scale-down&quality=highest&width=490&dpr=2 2x,https:\/\/www.ft.com\/__origami\/service\/image\/v2\/images\/raw\/ftcms%3Addd1bdf5-4110-4f2c-8f9a-5d14134c2a71?source=next-article&fit=scale-down&quality=highest&width=490&dpr=3 3x\" width=\"1500\" height=\"2000\"\/><img decoding=\"async\" src=\"https:\/\/www.ft.com\/__origami\/service\/image\/v2\/images\/raw\/https%3A%2F%2Fd6c748xw2pzm8.cloudfront.net%2Fprod%2Fff8f4de0-61b2-11f0-856f-b51cb8e7b2ac-standard.png?source=next-article&fit=scale-down&quality=highest&width=700&dpr=1\" alt=\"Line chart of Futures implied reduction in the federal funds rate in December 2025 (basis points) showing A cut or two\" data-image-type=\"graphic\" width=\"3500\" height=\"2500\" loading=\"lazy\"\/><\/picture><\/figure>\n<p>There was good news in the inflation report, too. Shelter prices, a long-standing problem for the Fed, have fallen sharply over the past two months. And vehicle prices fell in June, despite the 25 per cent tariff on cars. According to Tombs, had it not been for auto prices, core goods prices would have risen 0.5 per cent between May and June, the highest monthly change since June 2022, in the throes of post-pandemic inflation.<\/p>\n<p>Most analysts argue this is just the beginning of tariff-induced inflation. Companies have been running down existing inventory and absorbing tariff costs as they wait for clarity on Trump\u2019s \u201cdeals\u201d; that can\u2019t go on forever. Timely data shows that some car manufacturers, for example, are starting to raise prices, said Bradley Saunders at Capital Economics. Tom Porcelli of PGIM estimates that headline inflation could get as high as 3 per cent to 3.5 per cent in the next year as tariffs solidify.<\/p>\n<p>Porcelli and many others argue that tariff inflation will be largely transitory. But until the Fed knows the level at which the president\u2019s tariffs will settle, it won\u2019t be able to shrug them off. If the labour market sours before we get that clarity, the Fed will have tough choices to make.\u00a0<\/p>\n<p>(<em>Reiter<\/em>)<\/p>\n<h2 class=\"n-content-heading-2 o3-editorial-typography-chapter\">Treasury investors\u2019 blues<\/h2>\n<p>We are living in one of the worst periods in history for Treasury investors. Nominal returns on the benchmark 10-year Treasury are at an all-time low on a trailing 10-year basis. In real terms, things aren\u2019t quite as bad as they were in the 1970s or after the world wars, but they sure ain\u2019t pretty. Charts from Deutsche Bank:<\/p>\n<figure class=\"n-content-image n-content-image--inline\" style=\"width:350px;max-width:100%\" data-component=\"image-set\"><picture><source media=\"(min-width: 700px)\" srcset=\"https:\/\/www.ft.com\/__origami\/service\/image\/v2\/images\/raw\/ftcms%3Ae278de59-79bc-49da-ad1e-bc4f4910feb9?source=next-article&fit=scale-down&quality=highest&width=350&dpr=1 1x\" width=\"460\" height=\"520\"\/><img decoding=\"async\" src=\"https:\/\/www.ft.com\/__origami\/service\/image\/v2\/images\/raw\/https%3A%2F%2Fd1e00ek4ebabms.cloudfront.net%2Fproduction%2Fe278de59-79bc-49da-ad1e-bc4f4910feb9.png?source=next-article&fit=scale-down&quality=highest&width=700&dpr=1\" alt=\"Charts from Deutsche Bank \" data-image-type=\"image\" width=\"460\" height=\"520\" loading=\"lazy\"\/><\/picture><\/figure>\n<p>There are various ways to measure Treasury returns, but similar trends show up regardless of method. Aswath Damodaran at NYU Stern calculates the return on the 10-year bond over 1-year holding periods by taking the coupon rate at the end of the previous year and subtracting the price change of a bond with that coupon rate. Returns vary a lot by year, but the same lousy trend is visible. <\/p>\n<div class=\"n-content-layout\" data-component=\"flourish\" data-component-id=\"24252652\" data-component-type=\"flourish-in-article\">\n<figure class=\"n-content-picture n-content-layout__container\"><picture data-asset-type=\"flourish\" data-flourish-id=\"24252652\" data-flourish-type=\"visualisation\">\n<div id=\"24252652\" class=\"cp-message o-message o-message--inform o-message--notice\" data-o-component=\"o-message\">\n<div class=\"o-message__container\">\n<div class=\"o-message__content\">\n<p class=\"o-message__content-main\">Some content could not load. Check your internet connection or browser settings.<\/p>\n<\/div>\n<\/div>\n<\/div>\n<p><img decoding=\"async\" src=\"https:\/\/www.ft.com\/__origami\/service\/image\/v2\/images\/raw\/https%3A%2F%2Fpublic.flourish.studio%2Fvisualisation%2F24252652%2Fthumbnail%3FcacheBuster%3D973691?source=cp-content-pipeline&fit=scale-down&quality=highest&width=2626&dpr=1\" alt=\"\"\/><\/picture><\/figure>\n<\/div>\n<p>The reasons are well understood. Post-Covid inflation led to Fed rate increases that crushed bond prices even as inflation reduced real returns, culminating in the nightmarish year 2022, when bonds were crushed alongside equities. But what matters is what investors should expect in the next 10 years. Here\u2019s Scott DiMaggio of AllianceBernstein:\u00a0<\/p>\n<blockquote class=\"n-content-blockquote o3-editorial-typography-blockquote\">\n<p>If you look at the next 10 years \u2014 and 10 years is really hard to gauge \u2014 we think the neutral rate for the Fed is around 3 per cent. So the 10-year is probably somewhere in the 3.75 per cent range. So if you think of that as a pretty good predictor of where returns will be, you\u2019re probably looking somewhere in the area of a 4 per cent, 4.25 per cent [nominal] return.\u00a0<\/p>\n<\/blockquote>\n<p>Accounting for inflation expectations, DiMaggio estimates returns in the 2 per cent range. That\u2019s not nothing, but it is a huge shift from what investors have come to expect during the long bond bull market that ended in 2022. Between 1980 and 2010, according to the Credit Suisse Investment Returns Yearbook (RIP!), annual real returns on Treasuries bonds were 6 per cent a year annualised.\u00a0\u00a0<\/p>\n<p>Whether returns will be much better or worse than DiMaggio\u2019s 2 per cent central forecast depends mainly on inflation, of course. That uncertainty is built into yields in the form of a risk premium, as Christopher Brigati of SWBC explains<\/p>\n<blockquote class=\"n-content-blockquote o3-editorial-typography-blockquote\">\n<p>We\u2019ve had a remarkable amount of uncertainty as of late \u2014 we don\u2019t know what the next move is going to be, when the next tariff is going to drop. That adds a layer of uncertainty and unease to the market. As a result, we\u2019re seeing a little bit more of a term premium coming into the market. People require, and expect, better performance and better returns.<\/p>\n<\/blockquote>\n<p>Here, in light blue, are KPMG\u2019s estimates of the inflation risk premium:<\/p>\n<figure class=\"n-content-image n-content-image--full\" data-component=\"image-set\"><picture><source media=\"(min-width: 700px)\" srcset=\"https:\/\/www.ft.com\/__origami\/service\/image\/v2\/images\/raw\/ftcms%3Ace814cde-7620-44e4-a7f9-fe86913d8b3f?source=next-article&fit=scale-down&quality=highest&width=700&dpr=1 1x\" width=\"748\" height=\"383\"\/><img decoding=\"async\" src=\"https:\/\/www.ft.com\/__origami\/service\/image\/v2\/images\/raw\/https%3A%2F%2Fd1e00ek4ebabms.cloudfront.net%2Fproduction%2Fce814cde-7620-44e4-a7f9-fe86913d8b3f.png?source=next-article&fit=scale-down&quality=highest&width=700&dpr=1\" alt=\"Chart showing KPMG\u2019s estimates of the inflation risk premium\" data-image-type=\"image\" width=\"748\" height=\"383\" loading=\"lazy\"\/><\/picture><figcaption class=\"n-content-picture__caption o3-editorial-typography-caption\"><span>Interest rate decomposition<\/span><span> <!-- -->\u00a9 KPMG Economics<\/span><\/figcaption><\/figure>\n<p>If the inflation picture becomes clearer, and tariff inflation doesn\u2019t materialise, Treasury investors will harvest that premium. For the longer term, however, it would be dangerous to plan on real returns of more than a per cent or two from your portfolio\u2019s Treasury allocation. The golden age is over.<\/p>\n<p><em>(Kim)<\/em><\/p>\n<h2 class=\"n-content-heading-2 o3-editorial-typography-chapter\">One good read<\/h2>\n<p>EV wars.<\/p>\n<\/div>\n<p>#Tariff #inflation #arrives<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Unlock the Editor\u2019s Digest for free Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter. Good morning. Donald Trump announced a trade deal with Indonesia yesterday. Indonesia will be hit with a 19 per cent tariff on exports to the US \u2014 the initial threat was 32 per cent \u2014 […]<\/p>\n","protected":false},"author":1,"featured_media":280,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[4],"tags":[457,397,121],"class_list":{"0":"post-279","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-business","8":"tag-arrives","9":"tag-inflation","10":"tag-tariff"},"_links":{"self":[{"href":"https:\/\/www.worldpumpnews.com\/index.php?rest_route=\/wp\/v2\/posts\/279","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.worldpumpnews.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.worldpumpnews.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.worldpumpnews.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.worldpumpnews.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=279"}],"version-history":[{"count":0,"href":"https:\/\/www.worldpumpnews.com\/index.php?rest_route=\/wp\/v2\/posts\/279\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.worldpumpnews.com\/index.php?rest_route=\/wp\/v2\/media\/280"}],"wp:attachment":[{"href":"https:\/\/www.worldpumpnews.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=279"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.worldpumpnews.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=279"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.worldpumpnews.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=279"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}