Inflation free for 30 years?

The 30 yr bond auction, the part of the curve one can define as the leap of faith maturity in my opinion, was mixed. The yield was a touch above the when issued but the bid to cover of 2.77 was above the 1 yr average of 2.63. The combined direct and indirect take of the auction was the highest since Feb ’06, the first auction when the 30 yr was reintroduced. The 30 yr maturity is mostly purchased by insurance companies and pension funds in order to best match up with their long term liabilities and is the main reason why its spread to the 10 yr has gone to a record high this week as market participants outside of the above two go for smaller maturities. Also, regardless of where inflation is today or tomorrow, betting that we’ll see inflation of substance at some point in the next 30 years in light of current Fed policy seems like a good one and another reason why its lagged.

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