Indecision clouds my vision

Sorry, I couldn't resist the lame reference to a Faith No More song that got heavy rotation back in my day! But it's true. The economic picture ... and hence, the bond market outlook ... is a lot cloudier these days. Prices shot up 20/32 yesterday thanks to Ben Bernanke's decision to pick up the "Easy Al" mantle and pronounce inflation dead buried. Then today, an early, moonshot, 20-tick rally has completely faded for the reasons I highlighted earlier. While the main GROWTH measure (ISM) was weak, the prices paid sub-index rose and the latest housing stats came in hot.

Personally, I think both "real" inflation -- and especially asset inflation -- is still a problem. I've talked about the recent rise in the TIPS spread so I won't hammer that point home again. But I will point something out -- not once during the September-to-January trough did this inflation indicator drop below 200 basis points. In other words, the market has NEVER prices bond as if the Fed would act tough enough to get long-term inflation back into its 1% to 2% professed comfort zone. Food for thought.