Mid-Week Bond Market Round-Up

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Includes: BIL, DFVL, DFVS, DLBL, DLBS, DTUL, DTUS, DTYL, DTYS, EDV, EGF, FIBR, FLAT, FTT, GBIL, GOVT, GSY, HYDD, IEF, IEI, ITE, PLW, PST, RISE, SCHO, SCHR, SHV, SHY, SPTL, SPTS, STPP, TAPR, TBF, TBT, TBX, TLH, TLT, TMF, TMV, TTT, TUZ, TYBS, TYD, TYNS, TYO, UBT, UST, VGIT, VGLT, VGSH, VUSTX, ZROZ
by: Hale Stewart

Declining Inflation Expectations

The University of Michigan's long-run inflation expectations (top chart) and the 10-year CMT-10 year TIPS rate (bottom) chart are both declining. The University of Michigan's estimate has always been a bit high; it was 3-3.5% in 2012-2014 and has moved lower to 2.5%. The bond market measure is lower but probably more accurate. Either way, both have moved lower by about 50-65 basis points in the last 3-4 years, which has important ramifications for Fed policymakers.

Yield Curve Flattening

Since the beginning of the year, the curve has definitely flattened, with most of the movement coming in the short-end of the curve.

Your New Richmond Fed President

A video introduction of the new Richmond Fed President.

And Explanation Of The New Bond Market Conundrum

Why is the short-end rising and the long-end falling?

Declining inflation expectations.

Declining r*.

Decreased expectations for a fiscal stimulus and increased perception of economic and political risk.

Decreased term premium.