Friday, September 05, 2008

Inflation Expectations At Five-year Low

One of the key indications of the market's inflation expectations is the gap between yields on 10-year Treasury notes and Treasury Inflation Protected Securities, known as TIPS.

This gap represents the rate of inflation that investors in the $515 billion market expect over the life of the debt. TIPS pay investors a coupon plus the rate of inflation as measured by the government's consumer price index, effectively eliminating any erosion in the return on fixed-income securities caused by price inflation.

The gap between regular 10-year Treasurys and TIPS yields has fallen to 1.93%, a level not seen since 2003. The drop in commodity prices, chiefly oil, is being interpreted as easing pressure on virtually all other kinds of prices.

Marketwatch

HT: Clover Aguayo

10 Comments:

At 9/05/2008 4:24 PM, Anonymous Anonymous said...

This should be obvious. We're in a deflationary period as Mish has cogently explained.

This is not something to celebrate.

 
At 9/05/2008 4:51 PM, Anonymous QT said...

...and the unemployment rate just hit 6.1%

it's still a mixed bag but we still seem to be muddling through it

 
At 9/05/2008 7:16 PM, Blogger bobble said...

amen MP. there's not a whiff of inflation blowing through the 30 year treasury bonds.

seems like folks are increasingly willing to loan the govt money for 30 year term at lower and lower rates. currently 4.25%.

now that the commodity bubble appears to have popped, deflation could be next

 
At 9/05/2008 10:26 PM, Anonymous Anonymous said...

Now that F&F are getting their Pimpco bailout, MBS"S and treasuries should go to parity. Why buy a low yielding treasury when you can get the same guarantee with a MBS. This ain't gonna save houding though and it is only going to make things worse.

 
At 9/05/2008 11:47 PM, Blogger bob wright said...

Slightly OT:

Thinking about inflation/deflation and hedonics, GM estiamtes the Chevy Volt will cost you $0.80 to drive 40 miles electrically versus $7.50 in a gasoline vehicle that gets 20 mpg and gas at $3.75/gal.

The Volt is not a hybrid or plug-in hybrid, it is an E-REV, extended range electric vehicle.

 
At 9/06/2008 5:42 AM, Blogger juandos said...

"GM estiamtes the Chevy Volt will cost you $0.80 to drive 40 miles electrically versus $7.50 in a gasoline vehicle that gets 20 mpg and gas at $3.75/gal"...

Interesting bob wright but I wonder just what it will really cost to charge up that car once (assuming the Volt catches on) more of these cars hit the road...

Someone somewhere is going to have to build more electrical generation sources and use something to power those sources and more importantly pay for them...

Still I think maybe just maybe GM might have something there as long as the taxpayers aren't used as an unwilling partner in the purchase of these cars...

 
At 9/06/2008 5:49 AM, Blogger juandos said...

"We're in a deflationary period as Mish has cogently explained"...

Just curious here but isn't Mish's job in a sense competing with the Treasury and it sale of notes?

I've heard so many different, "definitions" of what an assets manager is I'm a bit confused...

None the less anon thanks for the link... Interesting stuff...

 
At 9/06/2008 8:02 AM, Blogger bob wright said...

Juandos,

I believe that built in to their calculation is the assumption that most people will recharge at night, when consumers pay an off-peak rate for their kwhs.

The charge per kwh for off-peak energy at my local utility is about half the charge for on-peak energy.

What I wonder about is the strain on the grid: the grid's capacity.

 
At 9/06/2008 2:11 PM, Blogger juandos said...

Hey bob wright, your comment: "The charge per kwh for off-peak energy at my local utility is about half the charge for on-peak energy"...

That used to be the case here with Ameren UE in the St. Louis, Mo area and it was pointed out on one's bill...

That disappeared several years ago...

Your question about the electrical grid is what I was also wondering about...

 
At 9/06/2008 2:22 PM, Blogger bob wright said...

Juandos,

Looking through the web site of Consumers Energy (our local monopoly utility co.) and my bill from last month, I see that I pay $0.047517/kwh for the first 600 kwhs, then $0.084687/kwh for all kwhs after that.

Using the paek/off-peak billing system is optional - it has to be selected by the consumer. I'm going to call and find out what the particulars are for opting into this alternate billing model.

 

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