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Inflation Breakevens Continue Recent Retracement

US
  • After much focus on surging real yields through Sept, it’s been easy to miss the subsequent rise in inflation breakevens as real yields have stalled, most recently with real yields -10/-7bps vs breakevens +5bps for 5Y/10Y on the day.
  • WTI bouncing off Sept lows helped firm short-term breakevens but longer-term measures have also increased with the 10Y at 2.45% off Sep 30 lows of 2.10% having more than closed the gap to pre-Sep FOMC levels.
  • This should still be seen as relatively anchored, at levels from before the Ukraine war and notably below in the case of the 5Y breakeven, but it has come despite nominal yields recently exceeding 4.5% for the 2Y and 4% for the 10Y.

US breakevens: 10Y (white), 5Y (yellow) and 2Y (purple). WTI 1st fut (red)Source: Bloomberg

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