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Inflation Expectations Stable As Real Yields Climb

US
  • With FOMC officials agreeing the outlook warrants a restrictive stance and the possibility an “even more restrictive” stance could be appropriate, nominal Tsy yields have climbed further with the 5Y increasing 1bp for +12bps on the day following the post-ISM reversal.
  • The day’s adjustment has come entirely from real yields (+12bps) with surprisingly little reaction in the inflation expectations as the breakeven remains particularly stable (unch). That is however after sliding in recent days to 2.52% (last price shown in chart below) or pre-taper levels.
  • There’s a broadly similar trend in the 5Y CPI swap as well, which although it hasn’t seen quite the same relative decline, at 2.77% is still comfortably below pre-Ukraine war levels.



5Y breakeven (white) and 5Y swap (yellow)Source: Bloomberg

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