Why the bond market might be overreacting to rising UMich inflation expectations

Today's preliminary May consumer sentiment survey from the University of Michigan showed a significant drop in consumer sentiment to 67.4, lower than the expected 76.0. Despite this, the bond market reacted more sharply to the slight increase in inflation expectations, with the 1-year inflation forecast rising to 3.5% from 3.1%.

The bond market's reaction, with US 2-year yields climbing to 4.85%, seems to align more with concerns over inflation rather than overall consumer sentiment. Ian Shepherdson from Pantheon Macro suggests that the market might be overreacting, noting that the methodological change in the survey from phone to web could explain the higher inflation expectations reported, deeming it "no big deal."