The above is a plot of mortgages for 1 year ARM and 15 and 30 years along with the 10 year Treasury rate. (Beware the two axes) The decline in the 1 year and 15 is striking whereas there is less of a decline in the 30. One should remember that mortgages are held about 7.5 years so that the 15 and 30 have similar maturities. Yet the 15 is significantly less than the 30. The Treasuries are low but above the lowest from late last year. Looking at the rates being set there is no significant fear of inflation if one believes these rates.
On the other hand look at PPI and CPI rates below:
We have plotted the 6 month running average of the monthly annualized change. The PPI is the concern because it gets reflected as a leading indicator in the CPI. It is holding at an annualized rate of about 7% which is most likely the looking forward inflation rate.
Finally we show the 1 month CD which is almost 0% and the AAA and BAA bonds. The spreads on the bonds are back to "normal" and their rates have come back to what they were five years ago. Thus bonds do not project any inflation trend.
The concern is the PPI and what impact it will have on the CPI.
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