Get Ready For Inflation Nation

Real Yields at 5% Show Inflation Fears Overdone: Chart of Day
By Dakin Campbell
June 18 (Bloomberg) -- Real yields are the highest since 1994 after a government report showed consumer prices over the last 12 months fell the most in six decades.
The CHART OF THE DAY shows the difference between the yields on 10-year Treasuries and the year-over-year consumer price index, known as real yields, over the last 20 years. The gap approached 5 percent yesterday, the most since it was above 5 percent in December 1994, signaling bond investors concerned about inflation have pushed yields too high too quickly, according to Michael Shaoul, chief executive officer at New York-based institutional brokerage Oscar Gruss & Son Inc.
“It seems that while participants have the right idea about the long-term inflationary impact of current monetary policy they have their timing off by several quarters,” Shaoul wrote in a note to clients yesterday. “We continue to believe that long-term Treasury yields have marked their high point for the current phase.”
The consumer price index dropped 1.3 percent in the year ended in May, the most since 1950, the Labor Department said yesterday in Washington. Prices increased just 0.1 percent last month, less than anticipated, after no change in April.
Real yields show the extra compensation investors demand to protect themselves against the risk of surging consumer prices.
Investors have grown concerned that government efforts to prop up the financial system and spur growth will stoke inflation. The government and Federal Reserve have committed about $12.8 trillion to thaw frozen credit markets and snap the longest economic slump since the 1930s. The Fed lowered interest rates to a range of zero to 0.25 percent in December.

Commentary: As Milton Friedman taught us, "inflation is always & everywhere a monetary phenomenon".
Are real yields too high? I disagree. The Fed is doing its best to re-inflate the economy and stoke the fires of inflation. In my view they will suceed. When this actually takes hold in the economy is anyones guess. If we see a bond auction failure, then the time is nigh.