|
Written by Calafia Beach
|
|
Thursday, 16 December 2010 09:10 |
The controversy over QE2 continues, but the real action is in the bond market, where bond yields and inflation expectations are moving up daily, if not hourly.
Before QE2 was even a possibility, yields and inflation expectations were declining from May through August. The fuel for this move was the belief that sovereign defaults in Europe would spread contagion through the global economy that could result in a double-dip recession in the U.S. Weaker growth, in turn, would intensify deflation pressures, thus making 10-year Treasuries an attractive hedge. So everyone piled into 10-year Treasury bonds, driving their yield down from 4.0% to 2.5%.
|
