Friday, June 10, 2011

TIPS Breakeven Rate Falls to Six-Month Low

As I've reported before, the "breakeven rate" - the difference between 10-year nominal Treasury yields and 10-year Treasury Inflation Protected Securities (TIPS) yields - is one market-based measure of expected future inflation.  

As of today, the breakeven rate was 2.17%, down by almost 50 basis points from the recent peak of 2.65% on April 11, and the lowest level since early December last year (see chart above).  Contrary to the worries of the many "inflationistas," this downward trend in the TIPS breakeven rate suggests that inflationary expectations in the bond market continue to moderate. 

11 Comments:

At 6/10/2011 7:20 PM, Blogger Benjamin said...

Inflaton is deader than Dodger pennant hopes.

Why anybody is ranting about inflation is beyond me.

The big problem, obviously, is weak demand. Ergo, tax cuts and QE3 are called for.

Dr. Perry is to be commended for not joining the mindless gaggle of right-wing gold nuts and paleo-monetarists in braying for "tight money."

Bernanke, and other central bankers, need to loosen up.

 
At 6/10/2011 8:35 PM, Blogger The High Priest said...

By the look of it, Benjamin has the best sense of dry wit I've ever seen.

 
At 6/11/2011 7:38 AM, Blogger VangelV said...

Why anybody is ranting about inflation is beyond me.

Because they drive, eat, buy medicine, pay for insurance, save for the kids' tuition and see that the cost for all of those activities is going up.

 
At 6/11/2011 7:47 AM, Blogger VangelV said...

The big problem, obviously, is weak demand. Ergo, tax cuts and QE3 are called for.

That would be wonderful for the dollar bears. We can have the Fed send false signals to the bond market by purchasing all of the newly issued debt even as the USD collapses and your foreign lenders move their reserves into something viable. At the end of the process the USD will lose its reserve status and the US will suffer the same fate as the UK. That would certainly free up some more oil for the developing world because the US consumer will no longer be able to use nearly as much.

Dr. Perry is to be commended for not joining the mindless gaggle of right-wing gold nuts and paleo-monetarists in braying for "tight money."

Dr. Perry's naive optimism is getting in the way of his judgment. For some reason he seems to reject what is obvious to any objective viewer with a knowledge of economics. That said, he does a great service to those of us who make bets against the prevailing wisdom. Without people like him the economy would already have gone through the collapse stage and we would have to find some other bets on which to make money.

Bernanke, and other central bankers, need to loosen up.

Bernanke is actually worried about having a Havenstein moment. I doubt that he has the courage to do something about it and expect him to pander to idiots who keep calling for a faster destruction of the currency.

 
At 6/11/2011 7:49 AM, Blogger VangelV said...

By the look of it, Benjamin has the best sense of dry wit I've ever seen.

I used to think that Benji was playing games and was being ironic when he made many of his statements. But after many of his postings I do not believe that is the case. So far the evidence is overwhelming that he actually believes what he is writing.

Of course, when things fall apart and Mark's error becomes evident Benji can always claim to have been joking because there was no way for someone to have been that wrong.

 
At 6/11/2011 8:52 AM, Blogger Rufus II said...

Of course, we're going into recession.

 
At 6/11/2011 11:15 AM, Blogger morganovich said...

"the difference between 10-year nominal Treasury yields and 10-year Treasury Inflation Protected Securities (TIPS) yields - is one market-based measure of expected future inflation. "

no, it's not. it's a measure of expected CPI. that is not the same thing as inflation.

commodity prices (particularly gold) are giving a VERY different signal.

so are the unadjusted price indexes. did you see the import costs "surprise"?

april was a disaster.

http://www.safehaven.com/article/21045/import-inflation-inferno-hits-us-consumers

may was supposed to show significant declines, but it rose once more, and is running at over 11% year on year.

export prices are even higher.

so what, magically the rest of the economy has no price change while everyhting we trade is up double digits?

that seems incredibly unlikely.

imports and exports are 23% of the economy. add in the like goods that we produce and consume domestically, and it's at least 33%.

so do the math:

.33 X 11.4% = 3.76% inflation right there if every other price was flat, a fact that i doubt anyone is going to try to claim.

i agree with vangel. this is looking increasingly like havenstein. government debt is being almost entirely monetized. they are even taking on huge swaths of private debt through freddy and fannie. our budget deficit is out of control and the liabilities of governmental agencies are exploding.

the government is buying it's own debt and much of the public's in an attempt to double down and mask the failure of their earlier forays into driving the economy with borrowed funds and inflating there way out of trouble.

isn't it interesting how bernanke speaks about the failure of employment to bounce back this time (going so far as to point out that even now we are further off the peak than we were at the depth of the 1982 recession). isn't it interesting how the 2 "recoveries" since 1992 when they changed CPI have been the slowest post was jobs recoveries?

it's not that the job market has changed, it's that the GDP deflator has. this means the recession look shorted and shallower than they are. if it were 1990, we'd be calling the current conditions significant recession (GDP growth would be about -3%).

you can pretend inflation is productivity and real growth, but that will not create jobs.

the reason none of their economic models are working is that they are getting garbage price level inputs.

 
At 6/11/2011 11:42 AM, Blogger morganovich said...

PS.

while we are on the topic of jobs, this graph is extremely instructive:

http://cr4re.com/charts/charts.html#category=Employment&chart=JOLTSApril2011.jpg

i know mark loves to trumpet gains in "job openings" but look at the absolute level. we are below the absolute bottom of the 2000 recession and maybe 30% below a healthy level. if you adjust this for population growth, it looks even worse.

further, the more important stat is "hires". gains in "openings" are not resulting in increased hiring which is stagnant and bumping along just barely above fires and quits.

if the economy were exhibiting the real growth that has been claimed in the last 2 "recoveries" we would have seen much more job growth.

that fact that we are not means that either a) the labor market changed in a very meaningful way right about when we changed the inflation measures or b) we are overstating real GDP growth.

there is no evidence to support the former and piles to substantiate the latter.

the discrepancies here are just too large to ignore.

 
At 6/12/2011 9:55 AM, Blogger VangelV said...

if the economy were exhibiting the real growth that has been claimed in the last 2 "recoveries" we would have seen much more job growth.

The real economy is not growing. I am tired of people trumpeting minor gains that were created by trillions of borrowing and bailouts. What we are seeing is a contraction. It began some time around 2005 and has continued ever since. I am amazed that people are not seeing it and are still hanging on hoping that their unwise investments will come back. Most people have had six years to move a portion of their net worth into precious metals and conservatively run commodity players in response to the crisis. But few have actually taken the step and hedged their exposure to the USD, treasuries, or the real estate market. That means that no matter what Bernanke says about ending QE2 there will be another program that does the same thing under a different name to take its place until foreign creditors and domestic bond holders signal that they have had enough. While I used to project $150 silver and $5,000 gold I am now thinking that I was way too conservative. To save the USD it will have to be linked to gold or silver but at prices that are substantially higher. Expect to see $10,000 gold and $250 silver in five years.

 
At 6/12/2011 8:57 PM, Blogger juandos said...

Leave it to the pseudo benny to rant on about stuff he's totally clueless about and apparently proud of it...

BTW what does it matter about TIPS when extorted tax dollars are being wasted on foreign banks by this administration?

 
At 6/13/2011 6:11 AM, Blogger VangelV said...

BTW what does it matter about TIPS when extorted tax dollars are being wasted on foreign banks by this administration?

A deal is a deal. The Fed has agreements with foreign central banks to keep intervening in the markets. It also misled the foreign banks and implied that it would back much of the lousy paper that was packaged and sold off to them. US banks are also counter-parties to the troubled foreign banks and were in danger of going under without the intervention. The revelations should not have surprised anyone.

 

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