August 17, 2022 17:49 GMT
- One area that pushes back on greater inversion in GoCs compared to Treasuries in the earlier post is market measures of inflation expectations.
- Canadian 5Y and 10Y breakevens are close to the 2% inflation target, having proven resilient to the strength in yesterday’s core CPI prints.
- That’s contrary to the US 10Y nearer 2.5% and 5Y 2.7%, which purely from an inflation expectations perspective could help Canada see a less severe play out of rates needing to be higher for longer and the impact this could have on growth. A spread between the two is typical but the 5Y in particular is running about twice the size of pre-pandemic levels - see charts.