Is inflation about to make a comeback? When it comes to the Commodities sector, inflation has been absent since the highs back in 2011. When it comes to inflation from a bond market perspective, little inflation has been taking place, since yields have been in a down trend for years and years.

Are bonds getting concerned that inflation might be coming back? Is the long-term bond bull market ending right in front of our eyes? What the inflation indicator does from here, could well answer many key questions about where the macro/global picture is heading.

Below looks at the TIP/TLT ratio, that is often viewed as a good indicator for the prospects of inflation or lack-of

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The ratio has been trending down for the past 7-years, creating a series of lower highs and lower lows. Since 2011, each time this indicator has looked like it was heading higher, it ended up peaking and turned south, inside of falling channel (1).

Since July of 2016, the ratio has been rising sharply, causing some to wonder if inflation/global growth theme might be taking place. This sharp rally has taken the ratio back to the top of falling channel (1) at (2). Over and over, this ratio has peaked and ran out of gas inside of this falling channel, suggesting that global growth was peaking again.

Now the ratio is testing falling resistance again, will the results be different this time? If it does breakout at (2), it does something different that it has done for years and years, commodities would like the price message and bonds could be very concerned about it.

What this indicator does at (2), could influence portfolio construction in a big way friends. Keep a close eye on what this ratio does at (2). Over the past several years, this is where commodities have peaked and bond prices have started to rally, what a fun test to see if it is really “”Different this time around!”

 

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