"Rates will be rising," said Rob Crimmins, a fixed-income manager in New York at RS Investments, which oversees $30 billion. "This latest month of weaker-than-expected economic data is transitory. The economy will pick up in the second half of the year."

Strips were conceived by Salomon Brothers Inc. and Merrill Lynch & Co. in the 1980s after then-Fed Chairman Paul Volcker broke the back of inflation that reached a 14.8 percent annual rate in March 1980 by raising interest rates as high as 20 percent, even as the economy slipped into the longest post-World War II recession. By the time he stepped down from the central bank in 1987, inflation slowed to 4.3 percent.

Inflation Tame

Strips -- short for separate trading of registered interest and principal of securities -- are created by breaking up the interest and principal payments of a debenture and selling them at a discount.

The consumer price index is forecast to rise 0.1 percent in May from the previous month when the Labor Department reports the data on June 15, according to the median estimate of 60 economists surveyed by Bloomberg News. The gauge increased 0.4 percent in April, matching the survey forecast and following a 0.5 percent advance in March, figures showed May 13.

The S&P GSCI index of commodities has fallen 7.9 percent from the high this year on April 8. Crude oil futures have declined 13 percent from the peak of $114.4 a barrel on April 29.

'Coming Down'

"Inflation expectations definitely have been coming down," said Amit Agrawal, a senior manager of government and inflation-linked bonds in New York at PineBridge Investments, which oversees $81 billion. "People believe the Fed isn't going to raise rates this year and QE2 is going to end," he said in reference to the Fed's second round of asset purchases, known as quantitative easing. The central bank's $600 billion in purchases of Treasuries are due to end this month.

While Fed Chairman Ben S. Bernanke said in the June 7 speech that record monetary stimulus is still needed to boost an "uneven" and "frustratingly slow" economic recovery, he gave no indication the Fed will start a third round of QE.

"On the margin, you don't have the stimulus on the economy," said Thanos Bardas, a managing director at Chicago- based Neuberger Berman LLC, which oversees about $85 billion in fixed-income assets. "Rates should go down, not up."