Take a look at the following 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.
"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat
Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput
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