Bond Market Has Been Clueless about Inflation for Decades, Now More so Than Ever. The Meme the Drop in Yields = End of Inflation is a Fantasy, by Wolf Richter

Bonds are probably the worst investment out there, but even if they’re not, they certainly make the top three. From Wolf Richter at

Even before QE, the 10-year yield lagged years behind CPI, up and down. And now, the Fed manipulates the market with QE.

The 10-year Treasury yield was 1.75% at the end of March, but by July 19, it had dropped to 1.19%, and on Friday it closed at 1.30%. This drop in the yield occurred even as inflation spiked. On a month-to-month basis for the past three months, and annualized, the Consumer Price Index spiked by 9.5%, the red-hottest since 1982. Year-over-year, CPI in June jumped 5.4%.

But the new meme now is that the drop in the 10-year Treasury yield is telling us the spike in inflation is nothing to worry about, and that by next early year, CPI will be at 1% or 1.5% or whatever. The meme now is that the bond market is right and CPI is wrong or something.

Historically, for much of the time, the 10-year yield is higher than the rate of annual CPI, meaning the “real” 10-year yield (after inflation) is positive. But there are periods when the 10-year “yield” is below CPI, for a negative real yield. Currently, with the 10-year yield at 1.3% (black line) and annual CPI at 5.4% (red line), the 10-year “real” yield is -4.1%, the most negative since June 1980:

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