Wednesday, October 13, 2010

Inflationary Expectations Continue To Rise

Today, the yield spread between regular and inflation-protected U.S. treasuries rose above 200 basis points for the first time since the before the Lehman Brothers collapse in 2008. The regular yield is as of this writing (as usual, when you read this, these numbers have probably changed with a few basis points up or down) 2.46% while the inflation-protected yield is 0.43%, implying an expected inflation of more than 2% per year during the coming decade.

By contrast, on September 1, the regular yield was 2.58% while the inflation-protected yield was 1.02%, implying an expected inflation of just 1.56% per year.

Not coincidentally, gold rose to a new all time high in U.S. dollar terms today.

If, as many suggests, the Fed is actively trying to increase inflationary expectations, then it certainly looks as if they are succeeding.