This is from today’s Wall Street Journal:

Worries over the financial health of a major Portuguese lender spooked global markets Thursday, drubbing shares in southern Europe and sending U.S. stocks on an early swoon.

The broad, sharp market moves were reminiscent of the euro zone’s debt crisis in 2011: A shock in a small country spread across the continent …

And that little jolt, involving a major bank in a small Euro-zone country, resulted in this move in TIP, the ETF holding a wide range of Treasury Inflation-Protected Securities:

Note that the TIP ETF outperformed overall intermediate Treasuries (IEI) and the overall bond market (BND) in the aftermath of a Eurozone banking issue.

The TIP ETF is up 1% this week (so far), outpacing the overall bond market. When you see TIP outperforming intermediate Treasurys (I’m using the IEI ETF here), you know that TIPS are getting more expensive versus the overall bond market.

• The nominal 10-year Treasury was yielding 2.58% on July 1 and it closed yesterday at 2.51%, down 7 basis points.
• The 10-year TIPS was yielding 0.32% on July 1 and it is trading right now at .22%, down 10 basis points.

This morning you are looking at a 10-year inflation breakeven point of 2.29%, still in the middle range, but TIPS will be worth watching as reaction to the Euro crisis continues.

If investors believe the crisis will force continued monetary easing, TIPS could be seen as more attractive than traditional Treasuries because of their inflation protection.

Here is the long term trend in inflation breakevens – with a number below 2.0% generally indicating that TIPS are ‘cheap’ versus Treasurys and a number above 2.5% indicating they are expensive:

View interactive version of this chart.