Inflation Expectations Declining

Take a look at the above chart of the TIPS spread and note the sharp plunge in the spread that has been occurring over the last few weeks. It is now at the lowest level in 9 weeks. Clearly, there has been a change in the market’s expectations regarding any onslaught of inflation pressures.

I think it no coincidence that this revised evaluation has taken place even as the commodity sector is plumbing new depths.

Just today, the GSCI scored a brand new, 16 month low!

I should also point out that interest rates have been moving steadily LOWER since the first of the year. The yield was near 3.0% when the year began. Today it ended 2.387%. That is most interesting given the Fed’s steady march to wind down the Quantitative Easing program. Many pundits, traders, and investors ( including yours truly here ) believed that interest rates would begin a steady march higher once the market became convinced that the Fed was serious about this. While geopolitical tensions can produce money flows into bonds as safe havens, knocking rates lower in the process, there is obviously more at work here since the steady move lower in long term rates cannot be solely attributed to those geopolitical events