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5Y Inflation Breakeven Consistent With Below PCE Target

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  • Inflation breakevens have provided a sizeable portion of today’s rise in 5Y Tsy yields (breakeven 4.3bps of 6.3bp total).
  • The increase to 2.16% for the 5Y breakeven is minimal in a trend sense though and follows a few days at circa 2.12% for lowest levels since early Jan’21.
  • A return to pre-pandemic CPI-PCE differentials in the region of 20-30bps would imply below 2% target inflation expectations on a 5Y basis, contrary to last week's surprise shift higher in U.Mich consumer 5-10Y inflation expectations from 3.0% to 3.2% for the highest since 2011.
  • There is much less movement in the 5y5y forward breakeven, hovering very close to an implied target at 2.25%.


5Y breakeven (pink), 5Y5Y forward breakeven (green)Source: Bloomberg

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  • Inflation breakevens have provided a sizeable portion of today’s rise in 5Y Tsy yields (breakeven 4.3bps of 6.3bp total).
  • The increase to 2.16% for the 5Y breakeven is minimal in a trend sense though and follows a few days at circa 2.12% for lowest levels since early Jan’21.
  • A return to pre-pandemic CPI-PCE differentials in the region of 20-30bps would imply below 2% target inflation expectations on a 5Y basis, contrary to last week's surprise shift higher in U.Mich consumer 5-10Y inflation expectations from 3.0% to 3.2% for the highest since 2011.
  • There is much less movement in the 5y5y forward breakeven, hovering very close to an implied target at 2.25%.


5Y breakeven (pink), 5Y5Y forward breakeven (green)Source: Bloomberg