The bond market bets the Fed can keep a lid on inflation, not just for the next few years . but...

The bond market bets the Fed can keep a lid on inflation, not just for the next few years ... but for a full ten. Looking at yields on the 10-year Treasury of 2.48% and 10-year TIPS at 0.34%, highlights the market is pricing in a paltry annual inflation rate of 2.14% between now and 2021.

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Comments (3)
  • Herr Hansa
    , contributor
    Comments (3130) | Send Message
    I would suspect more of a move back into US Treasuries driving this yield. While the US politicians were involved in political theatre, many of the largest holders of US Treasuries were unloading their positions and reducing their holdings. With that mostly over for now, there is a rush back into Treasuries. The catalyst of whether that decreases or slows will be the expected new Treasury auctions next week.


    Another slightly smaller factor is that CME Group increased the margin holding requirements for all parties using US Treasuries as collateral. So for larger positions in commodities, there is a need to increase Treasury holdings to show more collateral.


    When all this slows or stops is the next guess, though next week possibly. I have seen $TRIN go way above 3.0 several times, and I found the Art Cashin comment about high frequency computer trading of great interest. Today again $TRIN spiked over 4.0 and I await more interesting comments about HFT and computers gone wild.
    4 Aug 2011, 02:27 PM Reply Like
  • Vince Martin
    , contributor
    Comments (1778) | Send Message
    I think the market is less pricing in Fed success than it is assuming that there simply won't be enough growth to create 3% inflation for the next decade.
    4 Aug 2011, 02:34 PM Reply Like
    , contributor
    Comments (10786) | Send Message
    And how long will Japan need to continue to buy dollars to keep the Yen from tanking their export economy.
    4 Aug 2011, 04:03 PM Reply Like
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