When bond prices go down, the percent yield goes up. When the bond market is anticipating future inflation, it wants higher yields to compensate for the anticipated loss of purchasing power inflation causes. During a deflation, yields on the highest quality federal government bonds will remain low.
Waiting for this chart to break down is like watching paint dry - BORING. This is a monthly chart that starts in 1980. However, one would be remiss to look for capital gains from bond price appreciation after looking at this chart, which is in the very gradual process of topping out, and the yields and potential risk to the down side make a current investment in these instruments a poor choice.
I will stick to the deflation trade until this chart significantly breaks down (a monthly close in price below 90 on this chart oughta do it). This could be a decade away for all I know at the rate this chart is moving. Yields on 90 day short term U.S. government paper (i.e. T-bills) have essentially touched ZERO a few times in the past month! As a frame of reference, T-bill yields were close to 20% during the early 1980s.
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