Yields on 10-year Treasury Notes fell after data showed that inflation was tame in September and that the housing market is still far from recovery. The 10-year Treasury Note declined 7 basis points to 3.32%. Wholesale prices fell by a greater-than-expected .6%, Bond prices, which are inverse to bond yield, rise in low inflation environments as high inflation eats into yields.
Housing starts were flat at a seasonally adjusted annual rate of 590,000 in September, compared to a median forecast for an increase to a 607,000 pace.
Both pieces of data seem to point to an economy that is much softer than indicated by a torrid stock market. This dichotomy of low inflation/low rates is one hallmark of a developing asset bubble. As we saw in 1999 and 2006, low CPI inflation gives the Fed license to print money, money that finds its way into climbing asset prices. Indeed, this explains how the stock market, oil, and gold are soaring in value even as the fundamental economy shows meager signs of improvement.
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