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Inflation Breakevens Resilient To Commodity Price Climb

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  • Climbing real yields are behind today’s cheapening in Treasuries, with 5Y and 10Y real rising 12-13bp.
  • The counterpart to that the 5Y inflation breakevens consolidating a 20bp climb off last week’s lows of 2.12%, but at 2.32% it remains below pre-taper levels and relatively resistant to the recent climb in commodities prices (Bloomberg commodity price index +4.5% this week, including WTI +10%).
  • With markets expecting Fed Funds to hit a terminal 4.5% in Mar’23 before 4.2% in Dec’23, it shows market expectations remaining anchored without meeting the SEP median dot of 4.6% for end-2023.

5Y breakeven (yellow), 5Y real (green) and DXY (pink)Source: Bloomberg

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  • Climbing real yields are behind today’s cheapening in Treasuries, with 5Y and 10Y real rising 12-13bp.
  • The counterpart to that the 5Y inflation breakevens consolidating a 20bp climb off last week’s lows of 2.12%, but at 2.32% it remains below pre-taper levels and relatively resistant to the recent climb in commodities prices (Bloomberg commodity price index +4.5% this week, including WTI +10%).
  • With markets expecting Fed Funds to hit a terminal 4.5% in Mar’23 before 4.2% in Dec’23, it shows market expectations remaining anchored without meeting the SEP median dot of 4.6% for end-2023.

5Y breakeven (yellow), 5Y real (green) and DXY (pink)Source: Bloomberg