Thursday, November 12, 2009

Inflation expectations in the bond market

While gold continues powering upwards the US Treasury market is not confirming similiar concerns about inflation.  (If gold is climbing due to uncertainty regarding the entire paper fractional banking monetary system is another matter)  Looking at the comparative yields of nominal versus inflation protected bonds (called TIPS) issued by the US treasury is illuminating. 

As you can see inflation expectations in this market are actually lower now than before this crisis erupted in 2008.  If the bond market was truely concerned with inflation you would see the implied breakeven inflation rate go up, not down. 


  1. Agreed. I tend to be more short term oriented and quite pessimistic - so bear that in mind - but I see prices dramatically out of line with consumers ability to afford things. Either prices must come down or real wages and employment need to come up. Until we see a breakout on the unemployment figure or a significant drop in the consumer price index expect downward pressure on the market.

  2. Today's PPI numbers concur with the deflationary trend. My concern is the Fed will panic and really crank up the printing presses. No longer will it be helicopter Ben, but B-52 Ben.