wallstreetexaminer.com / by Anthony B Sanders via Snake Hole Lounge /
(Bloomberg) — As traders prepare to underwrite $5 billion of inflation-linked Treasuries on Thursday, they’re as confident as ever that the Federal Reserve’s predicted inflation rebound won’t materialize at any point in the next 30 years.
Low inflation, which Fed Chair Janet Yellen last weekend called “the biggest surprise in the U.S. economy this year,” has been a fact of life for years in the $1.29 trillion market for Treasury Inflation Protected Securities. The market-implied inflation expectation signaled by five-year TIPS has rarely been above the 2 percent mark since 2013.
There’s an even stronger signal that traders see little pickup in consumer prices for a generation to come, especially with the Fed intent on tightening monetary policy. The anticipated inflation rate implied by 30-year TIPS yields, at 1.91 percent, is a mere 18 basis points above that on five-year TIPS, among the narrowest gaps seen in the past two decades.
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