Bond Market's Inflation Widowmaker Returns in a First Since 2013
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In a rush to purchase inflation protection, bond traders are piling into wagers they already know will probably backfire on them.
The demand for Treasury Inflation Protected Securities, known as TIPS, and the relentless flattening of the U.S. yield curve have sent the spread between 30- and 10-year breakeven rates below zero for the first time since 2013. When it turns negative, it’s colloquially referred to as a “widowmaker” trade, because it’s seen as likely to cause quick and sharp losses. Indeed, the last time it happened, the gap widened by more than 25 basis points within three months as the 2013 selloff known as the taper tantrum gripped bond markets.