Salient to Investors:

  • The shares outstanding in iShares TIPS Bond ETF exceeded those of the FlexShares iBoxx 3-Year Target Duration TIPS Index ETF by the lowest on record, indicating investors are betting the Fed will achieve its price-stability goals.
  • Overall inflows to ETFs tracking US inflation in 2014 are at the weakest pace of any fixed-income asset class tracked by Bloomberg.
  • Adrian Miller at GMP Securities sees no reason that an investor’s portfolio needs inflation insurance by most measures, and said lower commodity prices and low wages means the TIPS market will have problems performing as long as the market perceives inflation to be well anchored.
  • Bond-market indicators for long-term inflation, growth and funding costs are all lower now than they were at the end of the Fed’s first two rounds of QE.
  • Eric Rosengren at FRB Boston said it is time to consider dropping a pledge to keep rates low for a considerable time after the completion of the Fed’s bond-purchase program.
  • The US is projected to grow 2.1% in 2014. The break-even rate predicts average inflation of 2.13% during the next 10 years and versus the average rate of 2.2% during the past 5 years.
  • Stanley Sun at Nomura said Yellen sees any upticks in inflation as noise, while long-term inflation expectations have fallen rapidly, and with the Fed expected to eventually raise rates, longer term inflation expectations are expected to continue to wane.

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