Wednesday, April 29, 2009

Inflation Expectations Rising

Today's shall we say questionable (based on the view that even though overall growth was weaker than expected, the report was still positive because the consumer spending component was stronger than expected) stock market rally contributed to bond yields finally rising above the level where they were when the Fed announced. The 10 year yield tonight closed at 3.10%, above the roughly 3% the day before the March 18 announcement Fed announcement and way above the roughly 2.5% after the Fed announcement

However, that only goes for the yield on nominal bonds. The yield on so-called inflation-protected bonds closed at 1.55%, far below the 1.9% level before the March 18 Fed announcement.

The spread between inflation-protected bonds and those that aren't has thus risen from about just 1.1%: points to 1.55%: points, indicating rising inflationary expectations.

The other popular inflation indicator, gold, hasn't performed as well, but it hasn't really performed bad either, and at any rate that simply reflects worries over central bank gold sales as well as the general decrease in the demand for safe havens that the stock market rally has generated.


Blogger Jim Pearson said...

It's interesting that Bloomberg looked at the same spread with slightly different timing and found that it narrowed.
Nonetheless, the spread is still higher now.
Is there any conventional shorter name for this inflation indicator? "The difference between rates on 10-year notes and TIPS" is a bit wordy.

12:27 AM  
Blogger stefankarlsson said...

That story was published more than a week ago. Since then, the spread has increased dramatically.

I don't know any really good name, but TIPS-nominal spread would at least be shorter.

3:11 PM  

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