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Breakevens Edge Back Towards Highs

  • The 5Y breakeven at 3.63% is just 5bps off Friday’s highs as market-based measures remain elevated.
  • Longer-term 5Y5Y inflation swaps appear more resilient to the rebound in oil prices but are still at 2.58%, notably higher than the 2.3-2.4% more consistent with the 2% target.
  • However, recall Fed Governor Waller on Friday saying that despite calling for 225-250bp of hikes this year, he would be more concerned if (presumably surveyed) 2-yr out inflation expectations became unanchored and that they currently aren’t that high.
  • Bostic (2024 voter) earlier said he's on the relatively conservative side of the FOMC in eyeing 6 hikes for the year before clarifying that this partly as he waits to see what impact QT has whilst wanting to start it “quickly”.

5Y breakeven (white), 5Y5Y inflation swap (yellow) and WTI 1st (green)Source: Bloomberg

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