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Michael Gayed observes:

“When the TIP/IEF price ratio (Inflation-Protection/Nominal-No-Inflation-Protection) trends higher, it means bond market is swinging towards increased inflation expectations. When the ratio is trending down, bond market is favoring deflation through outperformance of Nominal bonds.

Inflation hedge tends to be equities: risk-on. Deflation hedge tends to be nominal bonds: risk-off. In nearly all cases, the ratio moved ahead of the stock market (mid-2008 downtrend before Lehman Crash, November 2008 ratio low before March 2009, Europe Problems April 2010 before Flash Crash/Correction, August 2010 QE2 inflation bets and stock market rally, decline for most of 2011 before August Summer Plunge). Curious to see that the trend now still appears lower even with QE3 on the horizon, no? May be suggesting bond market doesn’t believe QE3 will cause inflation and ultimately work.

If that’s the case, the stock market may be in for a rude awakening…”



Michael A. Gayed, CFA is Chief Investment Strategist at Pension Partners, where he structures portfolios. Prior to this role, Michael served as a Portfolio Manager for a large international investment group, trading long/short investment ideas in an effort to capture excess returns. In 2007, he launched his own long/short hedge fund, using various trading strategies focused on taking advantage of stock market anomalies. Michael earned his B.S. from New York University, and is a CFA Charterholder.

Category: Inflation, Quantitative, Trading

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.

4 Responses to “What Does Inflation Say About Risk On/Off?”

  1. ga082003 says:

    So has anyone got an explanation to why would DAX under perform S&P? Guess on findamentals which would you own?

  2. Mike in Nola says:


    While it’s a stock market and trying to explain it is probably futile, the German economy is in great danger because it relies on exports: to us, to the countries in the EU who are in big trouble and to China. All three markets are likely to shrink a great deal.

  3. Sunny129 says:

    Last qtr GDP below 2%

    10 year yield around 2%

    Does this foretell INFLATION?

    CREDIT market is sick with continued credit contraction!

    Zombie Banks are already INSOLVENT now getting hit with suits by FHFA to be followed by #? private suits, soon.

    My calls on TLT are doing great!

  4. philipat says:

    As discussed here many times before, this is Japan. The US having gone with the Japanese model, this should come as no surprise. Swedish meatballs are much more digestable, so one can move on in search of and to enjoy the next meal.