Inflation Expectations Up By Tony Crescenzi RealMoney.com Contributor 5/16/2008 12:36 PM EDT

Inflation expectations are trending upward in the bond market, as evidenced by both the recent climb in long-term interest rates and the behavior of inflation-protected securities, which today are priced for a greater amount of inflation henceforth than at any time in two months.

The yield spread between the Treasury's 10-year inflation-protected securities and conventional Treasuries is today at 2.48 percentage points, indicating that the bond market is priced for the consumer price index to increase at a 2.48% pace over the next 10 years, the highest level of inflation expectations since March 13. The high for 2008 in this regard is 2.56%, set on March 7; the low was 2.21% on January 22. In 2007, the high was 2.50% and the low as 2.19%.

These figures show that inflation expectations have moved into the upper end of the range. A longer view of the range, say the past four years, indicates that inflation expectations are smack in the middle, which is probably the only basis for comfort in the current trend in light of recent developments with respect to commodities prices.

RELATED STORIES
Job Data Chatter Ignores the Error
Housing Starts: The Good and The Bad
Good News in Philly

Tony Crescenzi is the chief bond market strategist at Miller Tabak + Co., LLC, and advises many of the nation's top institutional investors on issues related to the bond market, the economy and other macro-related issues. At the request of the Federal Reserve, Crescenzi is a regular participant in the board's Livingston Survey of economic forecasters. He is also the author of the revised investment classic, The Money Market, first published in 1978 by Marcia Stigum, and The Strategic Bond Investor. At the time of publication, Crescenzi or Miller Tabak had no positions in the securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Crescenzi also is the founder of Bondtalk.com, a popular Web site covering the bond market and the economy. Crescenzi appreciates your feedback; click here to send him an email.

Read our conflicts and disclosure policy.