Many well-paid talking heads have been saying repeatedly that inflation is out of control, while the bond market has been predicting that it will quickly fade and reverse. In this weird market situation, you can buy these bonds reasonably cheap.
Retirees, senior citizens and “widow and orphan” investors got some good news from Wall Street on Tuesday. But don’t worry if you missed it, because everyone else did too.
“Everyone… expects inflation to fall,” wrote the bank’s strategy team, headed by Michael Hartnett. Those expecting inflation to fall greatly outnumbered those expecting anything else. Meanwhile, the multi-trillion dollar bond market, which should be predicting this chaos, has instead been expecting something different. The bond market has been predicting that the huge surge in inflation will quickly fade and reverse, and that, over the next 5 years, it will average less than 3% a year. The current five-year inflation forecast is just 2.67%, down nearly a full percentage point from its peak in March. At no point has the forecast been close to 4%.
Thanks to this current consensus on falling inflation, you can buy inflation insurance right now reasonably cheap. And I can’t think of a compelling reason why you wouldn’t. Right now TIPS bonds look like a reasonably good value. Short-term, medium-term and long-term TIPS all currently promise to pay you more than inflation from today until 2052, no matter what inflation turns out to be.
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