As investors tune in for the Federal Reserve today, they will be listening/watching for clues as to their next move and thoughts on the economy. Interest rates have been climbing and investment portfolios are seeing big moves.
Higher interest rates could mean that the economy is on the mend and/or that inflationary pressures are emerging.
Inflation isn’t necessarily a bad thing, but it’s trend is very important for investor to follow when creating and adjusting portfolio asset allocations.
One ratio that does a great job of identifying inflation pressures is the TIP/TLT ratio. It measures the ratio of Inflation Protected Treasury Bonds (NYSEARCA:TIP) vs the 20+ Year Treasury Bond ETF (NASDAQ:TLT). A upward trend means rising inflation, while a declining trend means that inflation is subdued.
In the chart below, you can see that this ratio is trying to break its downtrend here. So this is a very important point in time and price. As well, Copper prices are rising (another indicator of economic activity/inflation). Copper is also at a critical juncture.
So what happens here could be big for investors and the economy. The Federal Reserve is adding some noise the chart this week, but ultimately this ratio will breakout or breakdown. Pay attention!
Further Reading: Treasury Bond Yields Gone Wild
Twitter: @KimbleCharting
Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.
