Boost for inflation-linked ETFs
Higher income and expectations of rise in consumer spending in the US are right on cue with Fed inflation target, report CORDELL EDDINGS and DANIEL KRUGER
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[NEW YORK] THE Federal Reserve's attempt to lift inflation to a level that would reflect a healthier US economy is starting to have a definite effect on the bond market.
For the first time in 19 months, investors are stepping up their buying of exchange-traded funds (ETFs) that hold Treasuries tied to cost-of-living increases, Bloomberg data show. Inflation expectations over the next five years surpassed 2 per cent to reach the highest level since May after a government report showed hourly earnings among US workers jumped more on average in February than economists forecast.
The shift in bond-market perceptions shows that some investors now expect consumer demand in the world's largest economy to be strong enough to push inflation towards the Fed's elusive 2 per cent target. Last year, investors were so convinced the persistent lack of price pressure had become entrenched that Treasury Inflation Protected Securities (TIPS), posted their worst losses since they were introduced in 1997.
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