A Surprise Uptick in US Inflation

By on March 16, 2015

US bondholders risk losing money too…

In January, the yield on 30-year US Treasury bonds reached a record low of 2.3%.

And today, the 10-year Treasury note yields just 2.1%.

Folks are willing to lend their money to Uncle Sam in return for annual interest payments just a few basis points (a basis point is 1/100th of a percentage point) above the Fed’s inflation target of 2%.

This shows how blasé investors have become over the prospect of consumer price inflation.

That could be a BIG mistake.

Everyone is certain that inflation is dead and will never come back.

But the Billion Prices Project, which uses the daily changes in Internet prices to gauge the rate of consumer price inflation, has spiked in recent weeks.

If the turn holds, inflation could be rising faster than most economists suspect.

The month-over-month increase in consumer prices is still extremely low. And the consensus is for inflation to stay low long into the future.

But as former Merrill Lynch strategist Bob Farrell used to say, “When all experts and forecasts agree – something else is going to happen.”

And that makes negative long-term returns on US bonds a strong likelihood.

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