Fixed income vol has not been lower since Nixon ended Bretton Woods. But need to see some wage inflation to turn it around and so far companies seem to prefer to not fill vacancies than bid up wages too much. That said with JLTs at 1.1 unemployed for every job ad something has to give at the margin and some wage inflation should rebound this year after six months had stagnation at the 3-3.6% range.
Just looking at wages peaking and slowing in isolation you could be forgiven thinking its about to see the end of the cycle. However corporate margins are still fairly high desipte having fallen since 2012, and Fed rates are still very loose.
This current credit led cycle is clearly late in the day, but it may be possible to transition to a new cycle led by wages-inflation-capex without a recession in the middle. If the Fed keeps enough behind the curve and if enough companies facing margin pressure decide to invest instead of cut back.
Bond market yields seem to primarily be handicapping the recession in the transition scenario, but capex seems to be bouncing and Trump is talking about an infrastrcuture deal.
Hedgeye ran a clip yesterday on the cyclical upturn in a number of sectors including industry:
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