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Inflation Breakevens Tumble To Early 2021 Lows

US
  • The current 2.5bp climb in 10Y Tsy yields masks a 14.5bp jump in real yields (green line, chart) with a subsequent 12bp decline in the breakeven to 2.21% (white line).
  • That leaves inflation expectations ~15bps below pre-2021 taper levels and down almost 80bps from the first rate hike in March, whilst the decline has been even more pronounced in the 5Y to 2.25% for the lowest since Feb’21.
  • It further supports FOMC commentary that inflation expectations remain anchored, yet comes off steep but less aggressive market pricing than the Fed median path, currently eyeing a terminal 4.46% in Mar’23 before cuts to 4.24% by Dec’23, contrary to the median dot of 4.6% for 2023.

Breakevens for 10Y (white) and 5Y (yellow), 10Y real yield (green) and DXY (purple)Source: Bloomberg

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  • The current 2.5bp climb in 10Y Tsy yields masks a 14.5bp jump in real yields (green line, chart) with a subsequent 12bp decline in the breakeven to 2.21% (white line).
  • That leaves inflation expectations ~15bps below pre-2021 taper levels and down almost 80bps from the first rate hike in March, whilst the decline has been even more pronounced in the 5Y to 2.25% for the lowest since Feb’21.
  • It further supports FOMC commentary that inflation expectations remain anchored, yet comes off steep but less aggressive market pricing than the Fed median path, currently eyeing a terminal 4.46% in Mar’23 before cuts to 4.24% by Dec’23, contrary to the median dot of 4.6% for 2023.

Breakevens for 10Y (white) and 5Y (yellow), 10Y real yield (green) and DXY (purple)Source: Bloomberg