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Inflation Breakevens Holding Near Recent Lows As Real Yields Slide

US
  • Softer US data earlier have helped continue the belly-led rally in Treasuries, with 10Y yields not far behind as they fall 8.5bp.
  • Today’s moves have been in real space, with 10Y real yields falling 8bps to 61bps in what could support risk sentiment, in contrast to the past couple days when real yields proved particularly sticky as breakevens slid.
  • Real yields are still up some 40bps on the month though, nearly all of which came after the CPI beat on Jun 10, to drive the trend decline in the breakeven to 2.39% from 2.78% prior to CPI and 3.04% late April [yellow in chart below]. Whilst still elevated, that is back to pre-Ukraine war levels and coincidentally a little below levels when the Fed shifted to tapering guidance last year.
  • The chart below shows a similar patten when focusing on the 5Y inflation swap instead [pink].

Source: Bloomberg

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