The U.S. is about to sell 10-year inflation-linked debt next week, keeping the spotlight on a corner of the bond market that’s rarely garnered this much attention in the almost quarter-century since its debut.
Heightened fears about the risk of raging consumer-price gains as growth rebounds are driving investors of all stripes to search for cover in Treasury Inflation-Protected Securities, a market that’s grown to $1.6 trillion. Traders talk of new entrants like retail buyers and global macro strategists — what the veterans are dubbing the “tourist crowd.” Cash has also been flowing into the largest exchange-traded fund for TIPS, part of the rabid demand that’s driven inflation expectations over the next half-decade to a 16-year high.
It’s all adding up to a head-spinning stretch for inflation traders. They say they’ve been caught off guard by the burst of activity, and the speed with which last year’s pandemic-induced recession is giving way in some minds to 1970s-level angst over out-of-control inflation. Barclays Plc’s Chris McReynolds likens the volatility in TIPS pricing to “watching table tennis while sitting in the middle of the table.”
