Long Bond Yields Make New Lows on Schedule with Taper and Thanks to Falling Inflation Expectations

Long treasury bond yields in the US fell to another new low on the year today with the 30-year settling at 3.01% and the 10-year settling at 2.28%. We've been highlighting all year the positive correlation between the rate of change in the Fed's balance sheet and long bond yields (when the balance sheet expands at a slower rate bond yields tend to fall) and it appears that relationship is still firmly in place as the first two charts below show.

We also point out that the main driver of the decline in rates has been a rerating lower of TIPS implied inflation rates (chart 3 below) to a level not seen since the end of 2011.