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Market Extra: With inflation insurance back in vogue, should bond investors be worried?

Some investors are tentatively bracing for inflation to make a comeback.

Prices of Treasury-inflation protected securities have steadily climbed throughout 2019, amid talk that the Federal Reserve could refrain from immediately tightening its leash when inflation overshoots the central bank’s 2% target. Though the year-to-date decline in Treasury yields, including a brief inversion of the 3-month/10-year curve, signals that bond investors have few fears of pent-up price pressures, the buoyant performance of instruments that function as insurance against a pickup in inflation shows many aren’t taking any chances.

“If [Fed] policy is set in order to achieve cyclical overshoot to the [inflation] target, breakevens should move higher,” analysts at Deutsche Bank said.

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