The 10-year TIPS breakeven rate stood at 2.539%, indicating that the market sees inflation averaging 2.5% a year for the next decade. Bets that inflation could accelerate in the coming months burst to the fore on Monday when the breakeven rate on five-year U.S. Treasury Inflation-Protected Securities (TIPS) – a measure of inflation expectations – jumped to a decade-high 2.717%. It traded at 2.695% by late Tuesday. All eyes are now on the U.S. consumer price index report to be released by the U.S. Labor Department on Wednesday. Until then, some investors appeared to be buying on dips.
“Welcome to a lot of money,” said Paul Nolte, a portfolio manager at Kingsview Investment Management, which oversees $2 billion. “The worry is maybe inflation is something more than transitory, but it looks like this is a mood swing for now rather than a longer-term concern.” Investors said the snap back in shares suggested that inflation concerns were not quite so entrenched yet, despite rising commodity prices and labor shortages in the United States. They said the sheer volume of money sloshing around in financial markets also meant some individuals are always looking to invest their cash on pull-backs.
The Nasdaq Composite (.IXIC) ended little changed, while the Dow Jones Industrial Average (.DJI) dropped 1.4%. The S&P 500 (.SPX) fell 0.9%, off a one-month low struck earlier Tuesday. But U.S. shares clawed back some of their losses over the course of the day, with the tech-focused Nasdaq Composite (.IXIC) reversing the bulk of its early 2% decline.
The Australian dollar , another proxy for commodity prices, was steady at $0.7839, but off a 10-week high of $0.7891 struck on Monday. Gold also recouped early declines, as a softer dollar offset losses generated by rising U.S. Treasury yields. Spot gold edged up 0.11% to $1,837.39 per ounce, after dropping as much as 1% earlier. The currencies of major natural resource suppliers such as Canada held ground amid rising commodity prices. The loonie was little changed at C$1.2097 after hitting a 3-1/2-year high of C$1.2078.
The dollar index , which measures the greenback against six major currencies, was little changed at 90.188, after touching a low of 89.979. The dollar, which slipped to a 10-week low on Tuesday on concerns that mounting price pressures could erode its value, also narrowed some of its earlier losses.
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