The amount of inflation embedded in the pricing of the Treasury's inflation-protected securities (TIPS) has increased in recent days but is in the middle of the 52-week range. Still, since the Fed cut the funds rate by 75 basis points on Jan. 22, the trend has tilted upward and into the upper-end of the 52-week range.
This has happened despite the deceleration in economic growth and well-known risks to growth. It can therefore be said that inflation expectations remain somewhat "sticky" such that if economic growth were to reaccelerate, inflation expectations could move to levels deemed uncomfortably high by the Federal Reserve and market participants. Of course, some will view the upward tilt in inflation expectations as good news, as it suggests that the economy is expected to avoid a deep recession and all of its deflationary implications.
The yield spread between 10-year TIPS and 10-year conventional Treasuries is today at 2.33%, the middle of the 2.18% to 2.48% range of the past year. The spread was at 2.22% the day before the Fed's 75-basis-point cut and was as high as 2.39% yesterday. At 2.33%, the spread means that TIPS are priced for the consumer price index to increase as at a pace of 2.33% over the next 10 years.
P.S. Will you be there when Cramer makes his next move?
Strong brands and companies with vast market exposure can help bolster your portfolio. Jim was able to lock in a 64% gain by buying Ingersoll-Rand at $13 and selling at $22.50. Action Alerts PLUS members were the first to see these moves. Were you among them? Get Free Access Today!
Tony Crescenzi Blog Rate-Cut Odds Up 1/31/2008 12:05 PM EST The market is predicting the Fed will continue to cut rates, but be finished by mid-year.
Tony Crescenzi Blog Chicago Index is Weak 1/31/2008 10:16 AM EST The details are mixed, but generally paint a negative view of the economy.
Tony Crescenzi Blog Jobless Claims in Recession Area 1/31/2008 9:43 AM EST The bounce recently seen is starting to approach levels that may be cause for concern.
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.
TheStreet.com has a revenue-sharing relationship with Trader's Library under which it receives a portion of the revenue from purchases by customers directed there from TheStreet.com.
RSS FEEDS
PODCASTS
