The Fed's QE3 is ratcheting up inflation worries. The yield spread between a 10-year Treasury inflation-protected note and the benchmark 10-year Treasury security widened to 264 basis points Friday, highest since April 2011 and up sharply from around 240 basis points before the Fed announcement. That means investors expect a 2.64% inflation rate on average within the next decade. "It seems to me that the Fed's newest, boldest policy initiative risks the kind of deterioration in inflation expectations that, once unhinged, could be potentially incredible difficult to re-anchor, and would, in the process, wreak all manner of havoc in the Treasury market," says Christopher Sullivan, chief investment officer at the United Nations Federal Credit Union.
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