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Inflation Breakeven Metrics Continue To Fall

US

BBG data shows the US 5Y5Y fwd inflation swap collapsing 20bp to 2.125% today, back to late 2020 levels.

  • Some clients note they are skeptical of the accuracy of the data (and the individual swap legs suggest a drop closer to 2-3bp to 2.32%). But it has put some renewed focus on breakeven metrics, and in an "actual" move, 10Y TIPS implied breakevens dropped below 2.10% today, lowest since Feb '21, after closing above 2.3% as recently as Wednesday.
  • Most of the TIPS breakeven intraday move was after the PCE data but before UMichigan/Chicago PMI, the latter two of which were decidedly "dovish" on the inflation front.
  • A continued fall in breakevens, alongside survey based metrics (note the confirmed deceleration in UMichigan final survey readings for September earlier) paves the way for the Fed to reassess the hiking outlook in a dovish direction.

Source: BBG, MNI

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BBG data shows the US 5Y5Y fwd inflation swap collapsing 20bp to 2.125% today, back to late 2020 levels.

  • Some clients note they are skeptical of the accuracy of the data (and the individual swap legs suggest a drop closer to 2-3bp to 2.32%). But it has put some renewed focus on breakeven metrics, and in an "actual" move, 10Y TIPS implied breakevens dropped below 2.10% today, lowest since Feb '21, after closing above 2.3% as recently as Wednesday.
  • Most of the TIPS breakeven intraday move was after the PCE data but before UMichigan/Chicago PMI, the latter two of which were decidedly "dovish" on the inflation front.
  • A continued fall in breakevens, alongside survey based metrics (note the confirmed deceleration in UMichigan final survey readings for September earlier) paves the way for the Fed to reassess the hiking outlook in a dovish direction.

Source: BBG, MNI