While commodity prices have sold off the past 2 days due to concerns
with the impact that swine flu will have on global growth, the implied
inflation rate in the 10 yr TIPS today has risen to the highest level
since early Oct at 1.51%. The dynamics impacting the bond market remain
the concerns with huge amounts of supply that would most impact the
longer end of the curve as the shorter end is more influenced by fed
policy (2 yr and 5 yr auctions were good), a slowing rate of economic
deterioration based on recent data, bigger picture inflation concerns
due to the Fed’s monetization of govt debt and lastly a possible game of
chicken between the Fed and the bond market as the 10 yr yield is at the
same level it was the exact day before the FOMC announced their plan to
buy Treasuries. Does Bernanke admit to himself that fighting the market
is probably a bad idea or does he think rates would be higher without
him and double down as a result.


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Category: MacroNotes

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

5 Responses to “inflation/bonds”

  1. leftback says:

    “Does Bernanke admit to himself that fighting the market is probably a bad idea or does he think rates would be higher without him and double down as a result.”

    A very good question. A much much more important Macro question than whether the stupid Dow goes up or down 20 points tomorrow. I have become so used to the 10-year range being between 2.50 and 3.00% that I am not sure what happens if we escape that range, although I presume it would be $ negative.

    Anyway, we know this has to happen at some point – for now I am long 2-years and TIPS and short the 10-year.

  2. YY says:

    It’s a classic game theory, the FED is more powerful than any individual player but weaker than the collective if it ever took a position against the FED.

    The least risky scenario, in my opinion, is not to fight the FED at the mid-field since the investor has the disadvantage, but cautiously do the fighting at the edges (where the investor is more nimble than the FED). This game requires patience, since the 95% of the time will be spent at the mid-field. We certainly had a great winning fight (as investors) late Dec., but really not many opportunities since (check out TBT DEC-APR).

  3. Simon says:

    Where can I buy credit default swaps for the Fed? …Oh that’s right they can print their own money….
    Why is inflation seen as somehow unlikely by people like Mish Shedlock?

  4. Simon says:

    It’s all totally about timing. There will be inflation and a commodities bubble again at some point. When? That’s the 64 Trillion Dollar question.

  5. Simon says:

    About half way down the comments section in this post by Brad Setzer is an interesting discussion that kind of encapsulates the bind that the FED and the Treasury are in.

    “The final hypothetical end point is the FED and Treasury IS the financial system and the US is the only country that uses dollars”

    Is a sentence in amongst it all. Many writer on many Blogs have tried to capture whats happening and where it will lead. This discussion in the comments section resonated with me as putting it quite suscinctly.