Investors Withdraw Billions from Inflation-Protected Bonds Market

According to Yahoo News, investors have withdrawn a total of $2.166 billion from five major exchange-traded funds (ETFs) focused on the US Treasury's inflation-protected securities in November. This marks the largest monthly outflow from these funds since October 2022. The withdrawals occurred as recent data showed a softening of inflation, and an index of nominal Treasury bonds experienced its most significant rally since November 2008. The Bloomberg US Treasury index gained 3.5% last month, outperforming the Bloomberg TIPS index, which rose by 2.7%. The Personal Consumption Expenditures (PCE) deflator, the Federal Reserve's preferred metric for assessing progress on its inflation mandate, is on track to fall below the central bank's median forecast of 3.7% for the end of 2023, according to Bloomberg Economics. As inflation eases and the economy slows, the bond market has returned to pricing in Fed easing over the next 12 months, with swaps traders leaning towards a first rate cut as early as March. However, Fed Chair Jerome Powell has pushed back against Wall Street's expectations, stating that the committee will proceed cautiously. Investors will closely monitor US consumer inflation figures released as the Fed begins its two-day meeting in mid-December. During this meeting, the Fed will update its summary of economic projections, including core inflation and rate policy estimates.