The bond market’s gauge of inflation expectations, the yield differential between ordinary Treasury bonds and inflation-protected Treasuries, plunged today just after the Bureau of Labor Statistics released an unexpectedly strong report for producer price inflation. Oddly, the breakeven inflation gauge, which usually tracks the oil price, dropped before the oil price fell. That’s a man bites dog story.

The PPI for final demand excluding food and energy rose 2.8% year on year against an expected rise of just 2.4%. The PPI measure, to be sure, has a very weak relationship to consumer price inflation, the gauge against which inflation-protected Treasuries are indexed. Nonetheless, the drop in front of tomorrow’s CPI number suggests that some investors are very confident that the consumer price report will be tame.