The bottom line: there is growing market belief that new quantitative easing is coming in the next weeks/months. The anticipation effect pushes nominal yields down and commodity prices up. It's true that while the 10-year yield is down 40 basis points since September 10, 10-year TIPS are down 50 basis points, consistent with the view that there may have been a modest decrease in real rates and increase in inflationary expectations. That of course is exactly what QE2 is supposed to accomplish. But why have commodity prices soared by more than 10% during the time period? In my view, it can hardly due to a favorable economic outlook on a global level. I rather see extensive commodity investment as another part of the search for yield channel as had been recently stressed by R. Rajan.
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