CPI vs. Treasury Bonds

On 12/1/2021, the yield on the 30-year T-bond was 1.77%. On 12/31/2021 the yield had risen to 1.90%, and as of 1/14/2022 it further increased to 2.12%. While the trend is up, the yield is still below the peak for 2021, which was about 2.45% back in March. Yield curve rates can be seen here.

This tells me that while the CPI has been increasing, bond investors still do not believe that there are significant risks when it comes to runaway inflation. They likely believe that the Federal Reserve will be able to execute monetary policy effectively to quell the recent CPI increases. Is that a fair expectation? Maybe. It depends whether they believe that what has worked in the past will work in the future. In other words, the past is a good indication of the future.

In addition, what the behavior of the 30-year yield tells me also is that investors are more concern about recession than inflation. In a recession one would expect prices to decline, so the likelihood of mass inflation happening in the immediate future is quite low. Of course, like what happened in the 1970s, we can have a scenario where we have at the same time a recession and rising prices; but again, bond investors are currently discounting that possibility.