IMCV - Weekly Market Pulse: Inflation Scare?

• Bonds sold off again last week, with the yield on the 10-year Treasury closing over 1.6% for the first time since early June.
• But this rise in rates is at least a little different than the fall that preceded it. When nominal rates fell from April through July, real rates fell right along with them. But last week’s 14 basis point rise in the nominal rate was all about inflation - TIPS yields were unchanged.
• So, this rise has been driven more by rising inflation expectations than rising real growth expectations, although there has been some of both. If rising inflation expectations turn into rising inflation that turns into a further rise in inflation expectations, we have a problem.

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