We are long TIPS, short TLT.  This is a trade that will need leverage to work well but it isn’t very volatile.  Iraq meltdown is a wildcard though and we have a light position on now.

Another firm core CPI report makes the Fed’s job trickier
 We have been blogging about this for some time now.  Inflation is inevitable if easy money Fed policy persists.  That’s what they want.  Can they shut it on and off without creating a lot of volatility?  No way.
Quoted from JP Morgan Michael Feroli
Both the headline and core Consumer Price Index (CPI) came in firmer than expected in May. The CPI increased 0.35% (2.1% over year-ago), and the ex-food and energy core CPI rose 0.26% (2.0% over year-ago), the largest one-month increase for this measure since October 2009. Over the past three months the core CPI is now up 2.8% annualized. By our estimate this implies a 0.16% increase for May in the Fed’s preferred core PCE measure of inflation, which would take the year-ago increase up to 1.5%. The recent move higher in inflation makes the Fed outlook more interesting. As for tomorrow, the current statement language on inflation is so generic that it doesn’t have to be modified, though the recent news could increase the odds that an amendment could me made to mention inflation moving back towards the Committee’s longer-run objective.