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Inflation Breakevens Hovering Around 2% Inflation Target

CANADA
  • 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.

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  • 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.