Just the Idea of Inflation Is Spooking Bond Traders Again

Three months ago, bond traders were bracing for deflation in the U.S.

Now, they’re starting to worry about inflation — and snapping up a record share of Treasuries that offer some protection.

So what’s changed? Part of the answer, of course, has to do with oil, which arrested what seemed like an unrelenting slide that pushed prices from more than $100 a barrel to less than $50 in a span of five months.

But perhaps just as important is the bond market’s changing perception of the Federal Reserve. Instead of worrying about how the Fed’s zeal to roll back its policy of holding interest rates near zero might choke off growth, bond traders are now confident the central bank will let the economy regain the momentum it lost with oil’s plunge before raising borrowing costs.

“We’ve been through the negative impact” of oil, said James Evans, a New York-based money manager at Brown Brothers Harriman & Co., which oversees about $15 billion. “And the Fed is still going to be very cautious about raising rates. The foundation is there for higher inflation.”

[source]

PG View: If the foundation for inflation is there, then gold has built a solid foundation in recent weeks as well from which to launch.