Yields on bonds continue on a downward trend, as oil continues to fall as well.
The 2-yr note sits at just under 2.4%, while the 5-yr note closed at 3.07% and the 10-yr at 3.82%. The fact that the bump upwards in the CPI last week has had no negative impact on the Treasury market, indicates a forward looking view of benign inflation.
The current trend of falling commodity prices is indicating the growing sentiment that inflation will fall, or at least be in check, going into the end of this year. This is also being reflected in the way the Fed Funds futures are trading, which are now predicting that the Fed will keep rates at 2% through the end of this year. In addition, the spread between the TIPS and the 10-yr note has narrowed to 2.18% from 2.56%. This is the smallest spread since January 2004.
All this is indicating that inflation is not as big a threat as it was 6 months ago.
Keep an eye on the meeting in Jackson Hole, WY this Friday, as Bernanke will be making opening comments on the financial stability of our nation and its banking system.
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