ESGB - Inflation And The Bond Market

• The latest headline inflation figure by the CPI measure was 6.2 percent, the highest level since October 1990. Core inflation was 4.6 percent, higher than at any time since 1991.
• The normal effect of inflation on bond yields is to send them higher. But that is not what is happening today.
• When inflation started to rise earlier this year, bond yields initially followed suit. But the Treasury market stabilized after reaching highs just shy of 1.8 percent back in March, and currently trades in a range between around 1.6 percent and 1.4 percent. This has puzzled fixed-income traders, many of whom had placed significant bets on rates rising.

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