Simone Wapler – La Chronique Agora (France) –
The return of inflation and the rise in bond yields are two trends that have been taking shape since the beginning of the year and can disrupt your savings.
Last week, inflation was twice the Wall Street Journal . Financial markets are now focused on the return of inflation in the United States even if the statistics are not yet alarming.
We know this from the bond market and more specifically to TIPS, or Treasuries Inflation Protected Securities. The TIPS guarantees to the holder that the principal, repaid at maturity, will be indexed to inflation.
Institutional investors have the choice at any time to buy on the secondary market (the one of the occasion) a classic treasury bond or these securities which guarantee their holder protection against inflation.
If they think that the return of the bond will not cover inflation over the bond period, then they have an interest in taking TIPS rather than the normal bond.
So they sell treasury bills to buy TIPS. As they sell treasury bills, the yield on Treasury bills increases. This is what is happening now.
If they buy TIPS, the performance of TIPS decreases. As a result, the yield spread between treasury bills and TIPS is increasing.
Again, that’s what happens. The spread or yield gap between TIPS and treasury bills is widening.
Mr. Market thinks that over 10 years, inflation will be higher than what the Fed estimates.
The 10-year yield is the reference obligation for business consumption and credit. He determines the mortgage rates, the business loan rate, and so on.
Will the Fed continue its bond sales which also help to increase yields? The expected rate was:
- $ 60 billion in the first quarter
- $ 90 billion in the second quarter
- $ 120 billion in the third quarter
- $ 150 billion in the fourth quarter
But $ 233,000 billion in global debt depends on ultra-low interest rates. What’s going to happen ?
Of course, dear reader, you already know that we do not have the answer. We simply note that gold (which is no one’s debt) has risen well above $ 1,300 an ounce. We also note that the euro is not so strong, contrary to what we read everywhere: it has lost 1.57% against gold since the beginning of the year (which has only 15 days) . [Editor’s note: How to take advantage in the future of this furtive increase in gold that began more than a year ago? Everything is explained here. ]