Bond Market Disconnected With Economist Expectations, Says Deutsche Bank (TLT) (SPY)

Deutsche Bank Chief Economist Peter Hooper pointed to a disconnect between the bond market and economist expectations. He ties this disconnect to global forces and potential impact on U.S. inflation expectations.

"Market expectations about Fed policy tightening have remained remarkably subdued despite increasing evidence that the US economy is rebounding strongly. This disconnect between economist expectations (including our own) and bond market performance appears to be based importantly on differing expectations about inflation, driven at least in part by the view that low inflation has increasingly become a strong force globally," said Hooper.

"Our analysis suggests that the negative impact of global forces on US inflation, while present, is likely diminishing, and that domestic factors should predominate. The absence of a strong and growing global disinflationary force weighing on US inflation has potentially important implications for market expectations and interest rates. If inflation picks up in the months ahead as we expect, the global disinflation view should lose currency, resulting in some upward adjustment on nominal interest rates," he added.

Traders are watching iShares 20+ Year Treasury Bond (NYSE: TLT), SPDR S&P 500 (NYSE: SPY), and related ETFs.

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