FWIW, TIPS are driven by derivative markets like everything
else, and derivative market models. Thus, inflation
expectations priced in these instruments are likely
the expected next BLS release, which is always in fantasy
land at this time.
Once discovered, inflation lies tend to cause government
bond crisis. What happened was socialization of risk - a
shift of risk from Wall Street to the Fed and especially
the government (FHLB). What happened was indeed a safety
run to treasuries, perceived safest instruments. Certainly
safer than even bank deposits
The policy response of the government is to lower taxes,
backstop the mortgage meltdown, increase employment, start
some war to increase spending. It does not take a Ph.D.
in math to figure out that increasing spending while
cutting taxes means trouble for the government finances
down the road, which will eventually lead to re-pricing
of the risk for US government sovereign bonds, and, by
extension, USD (Fed's paper). |
