May

7

One notes that the 30 year bond has gone down 11 big points in the last 13 days, and this is the largest decline in history. Rational expectations would not have predicted that the long term rate of inflation expected has changed that much.

anonymous comments: 

Wages, energy, and housing are all rising faster than the current rate of core inflation, but perhaps not at a rate that would justify such a precipitous bond move. Bonds may simply be getting back in-line with their German counterparts. US and German rates diverged significantly over the past year or so due to fears of Greek default, deflationary concerns, and divergent monetary policy. Last month ust10y rates traded at ~24X det10y rates with the rate spread hitting an all-time high of 190 bps. The recent 55 bps bounce in 10 year bunds from the 0.05% low on rational expectations for grexit and the stabilization of oil prices, has seen the bond/bund relationship begin to revert to the mean with the spread narrowing to ~162 bps and the ratio trading < 4.00. 


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