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Barkin Keeps Real Yields In Focus

FED
  • Barkin (’24 voter) sees risk of stopping rate hikes too early and allowing inflation to ‘fester’ as being greater than from overtightening.
  • Latest PCE data consistent with “broad-based and persistent inflation”.
  • Most points broadly consistent with other Fed commentary but, depending on the context, the headline that “inflation seen as an episode, not a regime change” could somewhat go against Powell’s suggestion the economy may be entering a new normal post-pandemic.
  • Real rates continued to receive attention, wanting the Fed to keep them positive across the Treasury curve. That has certainly been the case with real yields surging further this week, including the 10Y up 28bps to 1.59% this week alone to post-2008 highs, and a primary driver of tumbling inflation breakevens – chart below.

Real yields for 5Y (pink) and 10Y (red)Source: Bloomberg

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  • Barkin (’24 voter) sees risk of stopping rate hikes too early and allowing inflation to ‘fester’ as being greater than from overtightening.
  • Latest PCE data consistent with “broad-based and persistent inflation”.
  • Most points broadly consistent with other Fed commentary but, depending on the context, the headline that “inflation seen as an episode, not a regime change” could somewhat go against Powell’s suggestion the economy may be entering a new normal post-pandemic.
  • Real rates continued to receive attention, wanting the Fed to keep them positive across the Treasury curve. That has certainly been the case with real yields surging further this week, including the 10Y up 28bps to 1.59% this week alone to post-2008 highs, and a primary driver of tumbling inflation breakevens – chart below.

Real yields for 5Y (pink) and 10Y (red)Source: Bloomberg