It was just one month ago that the 2s30s hit a fresh high. In the meantime, things for Blackhawk Ben have not gone quite as QExpected: the 30 Year has just hit 4.6%, which with the 2 Year still remaining relatively flat, has led to some dramatic fireworks in the 2s30s curve which just hit a fresh 30 year high of just under 400 basis points. Ben is starting to lose control of tail end inflation expectations, and with that he will soon be forced to intervene much more forcefully in managing prices and yields: small POMOs like today's $2.2 billion which focuses on bonds with a 17-30 year maturity just won't cut it. We expect that either QE2+ will focus much more on the long end (in addition to MBS and Munis) or, in the least, the POMO group will need to reshuffle its purchasing schedule and buy far more tail end bonds than in current schedules.
However as a reminder, as we pointed out in the "Great Regime Change" chart, this does not really imply much for stock prices. As inflation expectations no longer are the key driver for stock returns, the only gating factor since the great moderation is simply "growth expectations", which in our age means nothing less than how much more money can global central banks print. In other words we are now well and truly in the Zimbabwe paradigm: surging inflation is irrelevant for stocks, and we could easily get a Harare stock market in downtown New York, even as a loaf of bread costs 1 wheelbarrow of "money"