The Bank of Japan met yesterday and left their key lending rate and asset purchase program unchanged. Interest rates have been rising and bond market volatility is up. Bond investors were somewhat disappointed with the Bank of Japan as they had expected the bank to announce some measures to control bond market volatility. Global equity markets are all down today as equity investors are once again concerned about how central banks are going to manage their extraordinary support measures. The bond market is in the driver’s seat and equity markets are likely to rebound if volatility and expectations in the bond market normalize.
One of the odd divergent patterns that is occurring now is interest rates are rising yet inflation expectations are falling. This is a double negative for inflation protected treasuries. The chart below shows the recent price action in the iShares Barclays TIPS bond Fund ETF (TIP).