Tuesday, June 02, 2009

More Signs Of Rising Inflationary Expectations

-Gold above $980 per ounce. The price of gold has been supressed for some time over worries over IMF gold sales, but now worries about inflation seems to have taken the upper hand over worries about gold sales.

-Also, the spread between nominal Treasuries and TIPS reached 200 basis points for the first time since last fall after having been less than half of that earlier this year. The yield on TIPS is at 1.68%, almost unchanged since the last time I reported on the subject and still 22 basis points lower than before the Fed announced its expanded asset purchase program. However, the yield on regular bonds has continued to rise, with the 10-year security trading at 3.68% when this is written. That is 23 basis points higher than when I wrote about it the last time, and 66 basis points higher than before the Fed started uts asset purchase program.

So, if the Fed wanted to increase inflationary expectations, they appear to have been successful. Contrary to what they believe however, that will likely make things harder for them.


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