Core Insights - The ongoing U.S. government shutdown is pushing the $2 trillion Treasury Inflation-Protected Securities (TIPS) market into unprecedented territory, as the inability to release October's inflation data directly impacts TIPS and inflation swap markets [1][2] - The reliance of TIPS on Consumer Price Index (CPI) data means that the absence of this data could lead to significant market disruptions, with potential activation of a "backup plan" for calculating inflation adjustments [2][3] Group 1: Market Impact - The inability to publish October's CPI data could trigger the use of an estimated CPI value based on the last 12 months' changes, which would not be retroactively adjusted even if actual data is released later [2][3] - Concerns over data quality are already affecting investor demand for TIPS, as investors doubt their ability to hedge against real inflation effectively [5][6] - Despite the uncertainty, the market remains relatively calm, with some analysts attributing the weak performance of TIPS to broader factors such as falling oil prices [7][8] Group 2: Investor Sentiment - The current situation is compared to the "debt ceiling crisis," indicating a critical moment for market participants to monitor [1][3] - Investors are currently not in a state of panic, as the outflow of funds from TIPS-related ETFs has not significantly impacted the overall size of these funds [7] - Experts suggest that as long as price data remains free from political manipulation, the overall market dynamics may not change drastically [8]

Core Insights - Despite concerns about tariffs announced by Trump potentially increasing U.S. inflation, market indicators suggest that investor worries about future price surges are not strong [1][2] - The announcement of large tariffs on April 2 did not significantly impact the one-year U.S. inflation swap rate, which remained stable at 3.4% compared to 3.36% the previous week [1][2] - The upcoming U.S. Personal Consumption Expenditures (PCE) price index data is crucial for assessing inflation trends, as it is a key indicator monitored by the Federal Reserve [2] Inflation Indicators - Recent inflation indicators show an upward trend, with the S&P Global Purchasing Managers' Index (PMI) indicating the fastest increase in input costs and output prices since 2022 [6] - The Consumer Price Index (CPI) for the year ending in April shows an inflation rate of 2.3%, with the core inflation rate (excluding food and energy) higher at 2.8% [6] Market Reactions - Following the tariff announcement, initial market volatility was observed, but as trade negotiations progressed, market fluctuations began to stabilize [2] - The Cboe Volatility Index (VIX), which measures market fear, spiked in early April but has since returned to around 20, close to its long-term average [2] - The ICE BofA Merrill Lynch MOVE Index, which tracks bond market volatility, has also seen a significant decline since early April [2] Economic Outlook - Goldman Sachs forecasts that tariffs will lead to a one-time increase in prices, with core PCE inflation expected to rebound to 3.6% later this year before declining next year [8] - Consumer inflation expectations have risen, with a recent survey indicating a jump from 6.5% in April to 7.3% in May [9] - Despite inflation concerns, the U.S. economy is expected to remain weak, with growth below potential and a moderate rise in unemployment [9] Investor Sentiment - Investor sentiment improved significantly following Trump's announcement to delay high tariffs on the EU, leading to substantial gains in U.S. stock markets [9] - The Dow Jones Industrial Average rose by 1.8%, the S&P 500 increased by 2%, and the Nasdaq Composite surged by 2.5% on the day following the tariff delay announcement [9] - The yield on the 10-year U.S. Treasury bond fell by 7.6 basis points to 4.432%, marking the largest single-day decline since April 24 [9]