Best of the Bond Market – Inflation for the Average Joe = 8%

Best of the Bond Market for March 22nd, 2012

Top Story

Tweet and Article from @EverydayFinance

What’s Your REAL Inflation Rate? Everyday Price Index – Our Take: The consumer price index which is the government’s gauge of inflation is showing prices are currently rising at a 3.1% a year pace.  Lots of people feel thats too low and are saying that the price increases they are experiencing are way higher.  Well as Everyday finance points out in their article there is a new index out from the American Institute of Economic Research which shows inflation for the average person running closer to 8%.  Whats interesting is it seems like their index tracked CPI up until 2005, and since then there has been a large disconnect.  If anyone has any thoughts on why that is the case I would appreciate hearing from you in the comments.

Other Top Stories

Tweet and Article by @dlevineMW

US Sells TIPS at a Negative Yield Again – Our Take:  Treasury inflation protected securities (TIPS) normally pay a rate of interest like a normal bond however the principal also adjusts with the rate of inflation.  Because the consumer price index has inflation running at 3.1%, and the 10 year treasury bond is yielding significantly less than that (2.28%) investors are willing to take a negative return on the yield portion of the 10 year TIPS and accept the inflation adjustment as their return.  You can learn more about TIPS here.

Tweet and Article by @bespokeinvest

Muni Bonds Pull Back 5% – Our Take:  Good chart from Bespoke showing what the recent pull back in municipal bonds (yields higher/price lower) looks like on a chart as represented by the MUB (the ETF which tracks Investment Grade Munis).   Two things that strike me as interesting are 1 that the pullback has been pretty steep and 2 that were are still in a very nice uptrend on the chart which, for anyone who is wondering, held today.

Tweet by @Convertbond article by CNBC

To Trade the Dollar, Watch the Curve – Our Take:  The basic premise of the article is that if interest rates rise then this could make the dollar stronger.  A good takeaway from this for bond investors is that the bond market influences and is also influenced by many other financial markets.  Basically if treasury yields rise then this should be bullish for the US Dollar because more people from outside the US will want to invest in treasuries which creates demand for the dollar, which they need to convert their currency into in order to buy treasuries.

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